Three-dimensional numerical simulations using front-tracking method are performed to study the hydrodynamic interaction between two liquid capsules suspended in simple shear flow in presence of inertia. Capsules are modeled as liquid drops surrounded by neo-Hookcan elastic membranes. In the limit of zero inertia, it has been known from past research that the hydrodynamic interaction between two deformable particles (drops/capsules) suspended in shear flow results in an irreversible shift in the trajectories of the particles as one particle rolls over the other. In this article, we show that the presence of inertia can significantly alter the capsule trajectories. When inertia is small but finite, the capsules do undergo an irreversible displacement, but the lateral separation between them first decreases before they roll over each other, unlike in Re << 1. For moderate to high inertia, the capsules reverse their directions of motion before coming close to each other. The reversal of motion occurs progressively earlier in time (that is, the capsules come less closer to each other) with increasing inertia. The long-time behavior of the capsule-capsule interaction at finite inertia showed that the capsules engage in spiraling motions. Based on our simulations, four different regimes of capsule-capsule interaction at finite inertia are identified: (i) a self-diffusive type interaction, (ii) an outwardly spiraling motion, (iii) a fixed-orbit spiraling motion, and (iv) an inwardly spiraling motion in which the capsules settle with zero relative velocity. The reversal of motion, and the spiraling trajectories at finite inertia have no analogy in the limit of zero inertia. Such motions are explained by analyzing the flow field around a deformed capsule which shows reverse flow regions and off-surface stagnation points, similar to those previously reported in case of rigid spheres and cylinders under torque-free condition. (c) 2007 Elsevier Ltd. All rights reserved.