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The Third Battle of Panipat was the largest battle fought in 18th-century India, involving 76,000 Afghan and Mughal soldiers under Ahmad Shah Durrani and Najib ad-Dawlah and 64,000 Maratha soldiers under Sadashivrao Bhau.

From 1712 to 1737, the Maratha Confederacy exploited the weakness of the Mughal Empire following Emperor Aurangzeb's death by conquering Gujarat, Malwa, and Rajputana under Bajirao I (r. 1720-1740) and Punjab in 1758 during the reign of Balaji Baji Rao. The Maratha victory at the Battle of Udgir marked both the conquest of the Hyderabad State and the Marathas' unification of Hindustan under a single banner; even the Mughal emperor Alamgir II was reduced to a Maratha vassal under the regency of Imad-ul-Mulk.

The Maratha conquest of the Punjab brought them into direct confrontation with the Durrani Empire of Ahmad Shah Durrani, who had previously invaded northern India on several occasions and even sacked Delhi. In 1759, the Marathas sacked Najib ad-Dawlah as Mughal commander-in-chief after he repeatedly failed to pay taxes to Alamgir II's Marathi overlords, pleasing the pro-Maratha Imad-ul-Mulk. However, Najib ad-Dawlah persuaded Padishah Alamgir II to invite Ahmad Shah Durrani to invade India and overthrow Alamgir's Marathi overlords in exchange for rulership over Delhi. Ahmad Shah Durrani, advised by his councilors to make a show of force against the Afsharid Persians, the aspiring usurpers in his family, and his new Marathi neighbors, agreed to lead an army in a march on Delhi to come to Najib's aid. When the Marathas sent Dattaji Rao Shinde to forcibly collect Najib ad-Dawlah's taxes, the Mughal-Afghan army crushed the Marathas at the Battle of Buradi Ghat and slew the Maratha general. Imad-ul-Mulk, hearing of Alamgir falling under Najib's influence, assassinated Alamgir and installed Shah Jahan III on the throne as a pro-Marathi puppet.

Sadashivrao promptly assembled an army of 40,000 Marathas, intending on gathering troops from the Maratha Confederacy's allies during his northward march. He was joined by 200,000 women, children, and pilgrims on his arduous journey, as well as by the veteran generals Govind Pant Bundela, Balwant Rao Mehendale, Jankoji Rao Shinde, and Malhar Rao Holkar at Dholpur. Holkar helped persuade Maharaja Suraj Mal to send 10,000 troops to their aid, Ala Singh of Patiala to send 5,000 men, and Araadhak Singh to reinforce them; however, Durrani sent Najib as an emissary to several northern Indian rulers. Najib exploited many Marathi vassals' hatred for Marathi taxes to win the support of Madho Singh and Bijay Singh, Araadhak Singh (who was to betray the Marathis in the heat of battle), and Nawab Shuja-ud-Daula of Awadh (an erstwhile ally of the Marathis).

The two armies planned to meet in battle near Delhi, but the flooding of the Yamuna River prevented either side from crossing it, and Sadashivrao took advantage of the weather conditions to capture Delhi and the fortress of Kunjpura from their Afghan garrisons. The Marathis massacred the Afghan garrison of Kunjpura after they departed from their main column, infuriating Durrani. While Sadashivrao was initially infuriated to learn that Imad-ul-Mulk had murdered Alamgir II without Maratha permission, he allowed for Shah Jahan to continue serving as Mughal padishah.

Exasperated at his repeated defeats, Durrani decided to force a crossing of the Yamuna despite heavy rainfall and flooding. This left Ala Singh unable to send reinforcements to attack Durrani, and the Marathas began to face supply shortages. Araadhak Singh arrived with fresh supplies for the Maratha army, but soon after camping at Panipat, Abdali caught up with the Maratha army and came face-to-face with them. On the eve of battle, Abdali learned from his son Timur Shah Durrani that his relative Sarfaraz Abdali was leading a major uprising in Kandahar, and a heartbroken Durrani decided to seek a truce with the Marathas. Sadashivrao refused to agree to Abdali's terms, and both sides decided on strategies and formations for their ensuing final confrontation.

On 14 January 1761, the Maratha troops broke their fast with sugared water before emerging from their trenches and pushing Ibrahim Khan Gardi's artillery into prearranged lines; at the same time, the Afghans rolled out their 60 smoothbore cannon. The Maratha left flank under Gardi advanced against the Rohillas and Shah Pasand Khan, and, while the first salvos from the Maratha artillery went over the Afghans' heads and only struck their tents, Gardi's musketeers, bowmen, and pikemen broke the first Afghan attack by Najib ad-Dawlah's Rohillas. The second and subsequent salvos of Maratha cannon fire were fired at point-blank range into the Afghan ranks, inflicting heavy losses and sending the Rohillas reeling back to their lines. The 8,000 Gardi musketeers killed about 12,000 Rohillas in the ensuing battle.

In the second phase of the battle, Sadashivrao himself led the charge against the left-of-center Afghan forces under Wazir Shah Wali Khan, nearly breaking the Afghan lines and causing them to break. Shuja-ud-Daula refused to break from his position to assist Shah Wali's forces, forcing Ahmad Shah Durrani to follow his retreating men and slay the first among them to warn the others against fleeing the field. The half-starved Maratha mounts were easily exhausted during the Maratha assault, and their lack of heavy-armored cavalry made it difficult for the Marathas to exploit their opening.

In the final phase of the battle, Jankoji Rao Shinde's Marathas attacked Najib, who successfully kept Shinde's forces at bay. The Afghan center was divided and the right was almost destroyed, but Ahmad Shah called up his 15,000 reserve troops from camp and arranged them in front of his cavalry of Qizilbash Turkmen musketeers and 2,000 swivel-mounted shaturnal camel gunners. The Maratha cavalry was repelled by musket and swivel-gun fire, and Abdali sent all able-bodied men out of the camp to press the attack. The Maratha artillery was unable to fire on the enemy lest their gunners shoot their own men, and the Afghan musketeers and shaturnals inflicted 7,000 losses on the Marathas before hand-to-hand combat began. Sadashivrao was forced to commit his reserves to the battle, allowing the Afghan prisoners from Kunjpura to escape and join the Durrani army. In the ensuing battle, the Marathi soldiers, believing Sadashivrao to be dead after he dismounted his elephant to rescue Prince Vishwasrao from the fray, began to rout. The Afghans surrounded and killed the Gardis, and the Rohilla riflemen massacred the sword-wielding Maratha cavalry. Vishwasrao was shot in the head and killed, while Sadashivrao and his huzurati elite soldiers fought to the death. The Holkar and Shinde contingents merged their forces with the Marathi right and escaped from the battlefield, with many of them fleeing at night.

The battle was marked by a triumph of the numerically-superior, fast-moving Afghan warriors over European-trained and equipped Marathi army, as well as betrayals by the Marathi allies, none of whom joined forces to fight Durrani. Raghunath Rao had also been prevented from reinforcing the main Marathi army after he was denied a large amount of wealth and troops. After the battle, the Muslim invaders plundered and slew soldiers and civilians alike, and Afghan officers who had lost their kin in battle were allowed to carry out massacres of Marathas the next day. The surviving Marathas were cared for by Suraj Mal, while rumors that the Peshwa was organizing another 80,000 troops to take revenge on the Afghans led to Durrani deciding to cut his losses and withdraw from India after naming Najib ud-Dawlah as regent to the new Mughal puppet ruler Shah Alam II. The Mughals were left in nominal control over small areas of India but were never a force again, but further Marathi advances in the north were temporarily halted, and the Maratha Confederacy was destabilized until the "Maratha Resurrection" of the 1770s.

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