A crucial meeting to settle the proposed merger of beleaguered online marketplace Snapdeal with market leader Flipkart, due to take place in Bengaluru over Monday and Tuesday, has been called off, said three people aware of the developments.

The deal now appears to be falling apart after six months of hard negotiations.

Law firm J Sagar Associates and banker Credit Suisse, which are representing Snapdeal in the negotiations, were to meet with their counterparts representing Flipkart — Khaitan & Co and Goldman Sachs — in a bid to close the transaction. But the talks have now been cancelled, according to the people cited above.

A call between the key stakeholders is expected on Sunday night, and a potential public announcement on the fate of the deal could be made as early as Monday.

The deal that could have altered the Indian startup landscape and had the blessings of Japan's SoftBank — the largest investor in the Gurgaon-based Snapdeal — is now on shaky ground in the absence of backing from Snapdeal founders Kunal Bahl and Rohit Bansal, said the sources.

"The two co-founders have said they will vote in favour of Snapdeal going forward as a smaller, but independent entity, terming it 'Snapdeal 2.0'," said one of the sources cited above, on the condition of anonymity.

While there have been reports that listed ecommerce company Infibeam had also held talks with Snapdeal for a potential merger, sources told ET that a merger between the Ahmedabad-based company and Snapdeal were "slim". This could not be independently verified by ET.

Snapdeal and SoftBank did not reply to emailed queries from ET on the developments. Sidharrth Shankar, partner at J Sagar Associates and the lead legal counsel for Snapdeal's parent Jasper Infotech, declined to comment.

As per the terms of the bid put in by Flipkart, the Bengaluru-headquartered domestic retail giant has asked for 100% approval from Snapdeal stakeholders before going ahead. It has also included several indemnity-related clauses in the agreement.

On July 17, Flipkart had made a second bid for the struggling online marketplace — estimated at about $850 million — two weeks after its initial offer was rejected.

It is yet unclear whether a dragalong clause in Snapdeal's shareholder agreement can still be enforced to ensure the transaction goes through.

Further, a group of minority stakeholders in Snapdeal has objected to the special payout, estimated at about $90 million, to early investors Kalaari Capital and Nexus Venture Partners, as well the overall structure of the transaction.

The latest developments come barely days after Snapdeal sold its digital payments platform FreeCharge to Axis BankBSE 0.33 % for Rs 385 crore, which was first reported by ET.

The sale provided ammunition to the Snapdeal founders in their battle to retain control over the online marketplace. In an email to employees last week, Bahl called it a "great outcome". "We have an opportunity of a lifetime here, and we must seize it and make the most of it," he wrote.

The company is also in talks with several potential buyers for its logistics business Vulcan Express, and is looking to raise Rs 100-120 crore through the sale. In the event that the Snapdeal acquisition does not go through, SoftBank can go ahead with its anticipated investment in Tiger Global backed Flipkart.

However, sources told ET that the Tokyo-headquartered investor plans to first settle its affairs at Snapdeal.