The Indian Express fought back in the second set before going down 1-6, 4-6 in just 52 minutes against the Canadian-Belarussian combination.
Paes and Bhupathi could not convert any of the two break chances they got in the opening set and dropped their serve twice to concede the lead.
The Indians fought hard in the second set and saved six breakpoints but one break of serve was enough for their opponents to clinch the issue.
Meanwhile, Bhupathi and Paes have become the fifth team to qualify for the season-ending ATP World Tour Finals by the virtue of their semifinal appearance.
They have joined Bob and Mike Bryan, Michael Llodra and Nenad Zimonjic, Mirnyi and Nestor and Jurgen Melzer and Philipp Petzschner for the finale to be held in London from November 20-27. Three spots remain to be claimed.
The 'Indian Express' will make their sixth team appearance at the year-end championships and their first since 2002 after re-uniting as full-time partners this season.