The Marathas were largely remained disunited since the Third Battle of Panipet (1761). The internal conflict among the Marathas was best utilized by the British in their expansionist policy. In 1775, there was a dispute for the post of Peshwa between Madhav Rao and his uncle Ragunatha Rao. The British authorities in Bombay concluded the Treaty of Surat with Raghunatha Rao in March 1775. Rahunatha Rao promised to cede Bassein and Salsette to the British but later when he was unwilling to fulfill his promise, the British captured them. This action of the Bombay Government was not approved by Warren Hastings. In 1776, Warren Hastings sent Colonel Upton to settle the issue. He cancelled the Treaty of Surat and concluded the Treaty of Purander with Nana Fadnavis, another Maratha leader. According to this treaty Madhava Rao II was accepted as the new Peshwa and the British retained Salsette along with a heavy war indemnity.
However, the Home authorities rejected the Treaty of Purander. Warren Hastings also considered the Treaty of Purandar as a ‘scrap of paper’ and sanctioned operations against the Marathas. In the meantime, the British force sent by the Bombay Government was defeated by the Marathas.
In 1781, Warren Hastings dispatched British troops under the command of Captain Popham. He defeated the Maratha chief, Mahadaji Scindia, in a number of small battles and captured Gwalior.
Later in May 1782, the Treaty of Salbai was signed between Warren Hastings and Mahadaji Scindia. Accordingly, Salsette and Bassein were given to the British. Raghunath Rao was pensioned off and Madhav Rao II was accepted as the Peshwa.