In 1782 the Treaty of Salbai was made with Sindhia, the chief stipulations being that he should withdraw to Ujjain , and the British north of the Yamuna, and that he should negotiate treaties with the other belligerents. The importance of the treaty can scarcely be exaggerated. It made the British arbiters of peace in India and virtually acknowledged their supremacy, while at the same time Sindhia was recognized as an independent chief and not as a vassal of the Peshwa. A resident, Mr. Anderson (who had negotiated the treaty) was at the same time appointed to Sindhia's court.

Sindhia took full advantage of the system of neutrality pursued by the British to establish his supremacy over Northern India . In this he was assisted by the genius of Benoît de Boigne, whose influence in consolidating the power of Mahadji Sindhia is seldom estimated at its true value. He was a savoyard, a native of Chambery , who had served under Lord Clare in the famous Irish Brigade and Fontenoy and elsewhere and who after many vicissitudes, including imprisonment by the Turks, reached India and for a time held a commission in the 6th Madras Infantry.

After resigning his commission he had proposed to travel overland to Russia , but was prevented by the loss of his possessions and papers, stolen, it appears, at the instigation of Mahadji, who was suspicious of his intentions. De Boigne finally entered Mahadji's service, and by his genius for organization and command in the field, was instrumental in establishing the Maratha supremacy. Commencing with two battalions of Infantry, he ultimately increased Sindhia's regular forces to three brigades. With these troops Sindhia became a power in northern India .

In 1785 Sindhia reinstated the emperor Shah Alam on his throne at Delhi , receiving in return the title of deputy Vakil-ul-Mutlak or vice-regent of the Empire, that of Vakil-ul-Mutlak being at his request conferred on the Peshwa, his master, as he was pleased to designate him. Many of the principal feudal lords of the empire refused to pay tribute to Sindhia. Sindhia launched an expedition against the Raja of Jaipur, but withdrew after the inconclusive Battle of Lalsot in 1787. On June 17 1788 Sindhia's armies defeated Ismail Beg, a Mughal noble who resisted the Marathas.

The Afghan chief Ghulam Kadir, Ismail Beg's ally, took over Delhi , and deposed and blinded the Emperor Shah Alam, placing a puppet on the Delhi throne. Sindhia intervened, taking possession of Delhi on October 2, restoring Shah Alam to the throne and acting as his protector. Mahadji sent de Boigne to crush the forces of Jaipur at Patan ( June 20 1790 ) and the armies of Marwar at Merta on September 10 1790 . After the peace made with Tipu Sultan in 1792, Sindhia successfully exerted his influence to prevent the completion of a treaty between the British, the Nizam of Hyderabad, and the Peshwa, directed against Tipu.