Dassault has moved to distance itself from quality issues through a proposal to make the deal for 126 Rafale jets into two separate contracts, The Indian Express newspaper reported.
The tender was sent out in 2007. Dassault eventually beat rivals EADS with its Eurofighter Typhoon, Boeing with its F/A-18E/F Super Hornet, Lockheed Martin's F-16, the Russian-made MiG-35 and the Gripen from Swedish firm Saab.
The initial $20 billion contract was signed in January 2012.
The deal made Dassault the preferred supplier to manufacture the first 18 so-called fly-away aircraft powered by 2 SNECMA M88 engines at its plants in France.
Indian state-run Hindustan Aeronautics Ltd. is to produce on license at its works in India the remaining 108 medium multirole combat twin-engine, delta-wing Rafale jets.
But negotiations between the Indian government and Dassault are at a standstill because Dassault said it can't be held responsible for the 108 aircraft made by HAL, the Express reported.
To this end, Dassault wants two contracts signed.
Dassault said it will supply manufacturing kits and equipment to HAL on time but after which the contract with HAL will take over and Dassault will play no further role.
The Express said India's Ministry of Defense is pushing for Dassault to be solely responsible for the sale and delivery of all 126 aircraft.
Negotiations have been fraught for some time surrounding the exact role HAL is to play, including to what extent the Indian business was going to have exclusive supply chain responsibility in India, a Press Trust of India report said.
The government has insisted that HAL must have total responsibility for the Indian manufacture of the aircraft including supply chain function.
With negotiations bogged down it looks less likely that there will be additional Rafales added to the original 126-aircraft contract.
The PTI quoted a government source in January saying more Rafales could be added to the initial deal. The possibility was raised during a visit by Indian Foreign Minister Salman Khurshid to Paris, sources close to negotiations said.
There is an option for procurement of an additional 63 aircraft for which a separate contract would need to be signed," the source said.
Export sales and licensing agreements such as in India are essential for upgrading work on the already expensive Rafale, an analysis last month by Defense Industry Daily said.
The Rafale owes its existence to the French government's decision to not participate in the development of the EADS Typhoon aircraft. The Rafale is a lighter aircraft more suited than the Typhoon to aircraft carrier operations -- a requirement for France, the Defense Industry Daily report said.
But indigenous development has been expensive meaning exports are needed to make production economical as well helping finance research for upgrades if the aircraft is to remain a viable alternative to its rivals.
A report by Bloomberg financial news agency last month said Canada started talks in January about an order for the plane in the face of mounting costs for the Lockheed Martin Corp. F-35 Joint Strike Fighter.
The Bloomberg report said Dassault Chief Executive Officer Eric Trappier believes the odds of a Canadian deal are sufficiently good that the aircraft maker is willing to spend the money to undertake a sales campaign.