On the advice of the Company, the Gaekwar sent his Prime Minister Gangadhar Shastri to negotiate with the Peshwa. On his way back, Gangadhar Shastri, was murdered at Nasik in July 1815, at the instance of Triambakji.

This caused a lot of anger not only among the Marathas but also among the British. The latter asked the Peshwa to handover Triambakji to them. Peshwa handed over his Minister to the British, who lodged him in Thana jail from where he escaped. Consequently, on 13 June 1817, the British Resident Elphinstone forced the Peshwa to sign the Treaty of Poona. Baji Rao gave up his desire to become the supreme head of the Marathas.

Third Maratha War (1817-1819)

But soon the Peshwa undid this treaty with the British and on
5 November 1817 attacked the British Residency. He was defeated at a place called Kirkee. Similarly, the Bhonsle chief, Appa Sahib also refused to abide by the Treaty of Nagpur, which he had signed with the British on 17 May 1816. According to this treaty, Nagpur came under the control of the Company. He fought with the British in the Battle of Sitabaldi in November 1817, but was defeated. The Peshwa now turned to Holkar for help, but Holkar too was defeated by the British on 21 December 1817 at Baroda. Therefore, by December 1817 the dream of a Mighty Maratha Confederacy was finally shattered.