A bitter feud between two brothers - India's two richest men - and the collapse of the country's stock markets threatens to derail the creation of a new powerhouse in the world mobile phone market.

Reliance Communications (RCom), India's second-largest mobile company, is expected to give an update on its talks with MTN, South Africa's largest, early this week. Today is the final day of the two groups' 45-day period of exclusive negotiations.

Last night there were mounting doubts that a deal would be announced. A combination of the two companies would create a group with forecast earnings of $10 billion (£5 billion) for 2009 and footholds in a host of fast-growing mobile markets across Africa, the Middle East and India.

Last month, Mukesh Ambani, India's richest man, claimed that he had the right of first refusal to buy RCom, which is controlled by his estranged brother Anil. The move, which was vehemently denied by RCom, was widely construed to be an attempt to stall the MTN merger talks.

At the end of last week, Mukesh Ambani wrote to his brother to request a meeting that could prove a prelude to court action next month. Mukesh Ambani's representatives said that his company, Reliance Industries, had invoked the provisions of a dispute-resolution process “prior to commencement of formal arbitration” in the courts.

It is thought that Anil Ambani is now considering buying a direct stake in MTN - whereby plans for a reverse takeover of the South African company by the Bombay-listed RCom would be abandoned.

According to sources close to the talks, the previous plan had been for Anil Ambani to swap his 66 per cent stake in RCom plus an amount of cash for a 35 per cent stake in MTN - the most he could acquire without triggering a mandatory takeover offer. The value of RCom has plummeted in recent weeks, however, falling to about $20 billion, from $39 billion at the start of the year. That means MTN shareholders will require a far greater cash payment than originally envisaged, bankers say.

Mr Ambani is known to have talked to several sovereign wealth funds and private equity groups about raising fresh capital. It is unclear, however, what commitments have been made. It is possible that the exclusivity period for the talks will be extended, sources said.

The row between the two Ambani brothers marks a fresh low in the combative relationship between the subcontinent's wealthiest siblings. Their father, Dhirubhai Ambani, who built the Reliance empire, died without leaving a will in 2002. At that time Mukesh took over the running of the business, a situation that frustrated Anil. By 2004, the pair were squabbling publicly. After an intervention by their mother, Anil left with nearly 30 per cent of the business.

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