As France declared war on Britain in 1778, the Company resolved to drive the French out of India by seizing the few remaining enclaves of French possessions left on the subcontinent.

Mysore was supplied by French arms through the port of Mahé which, when taken by the British, caused Hyder Ali to form a confederacy against the British with the Marathas and the Nizam of Hyderabad. The war ended in another British defeat and the Treaty of Mangalore, the last occasion in which an Indian power dictated terms of peace to the Company.