Thanks a lot Chris.
I actually found a good thread that explains regen.
The above article and your explanation together is making sense to me now. I was thinking that the VFD tries to revert the phase of U, V and W so that the flux starts moving in opp direction. But that is not true. The VFD slows down the frequency so much that the flux rotation speed becomes slower than the rotor speed so rotor leads the flux propagation. This results reversal of torque direction, which acts opposite to the vehicle inertia and slows the motor. I think I got the essence of it, right?
I also understand now that the generated AC current flows through the free wheeling diods to V+ terminal of the battery. But those are nearly sinusoid (with some ripple due to stator sloting) and 3 different phases. Since these are going through the diode, I guess only the positive portion of the sinusoid that is greater than (battery voltage + the forward biasing voltage) will make to the battery, correct? Still there is no smoothing. Does it not hurt the battery with such undulating voltage (when you superimpose upper half of three phase sinusoids, you get a undulating waveform), especially when it is Li-ion pack?