My Scenario is - I will be receiving Batched files (FlatFile) and my BizTalk will be interacting with Web services(WCF)

My suggestions was to use ESB but I was told for Batched messages ESB is not a good idea. It works good for debatched messages.

Any suggestions for my scenario pl

Well, don't over think it.

Start by debathing the flat file, mapping to/from the WCF Service, and handling the response.  ESB or not, the outcome will be the same.

If this simplest solution doesn't meet your requirement, let us know what the gaps are and we can provide some additional guidence.

If I debatch the Flat file and say we received 10K orders, then there is good chances of Web service being timed out. So handling exceptions using ESB exception Management is good ?

or Using BizTalk 360 is a good tool as in the Advanced event viewer it monitors the Application errors ?

Now that's a different scenario.  Instead of starting with how to handle exceptions, focus on avoiding them in first place.

With 10k batches, you should consider a Resource Dispenser or Thottling pattern since as a caller, BizTalk can easily overwhelm your average internal service endpoint.

How to handle exceptions depends on what the business expectation is and who must handle them.