The incident sparked outrage across the country resulting in the New Delhi health minister threatening to revoke the hospital's license.
Max Healthcare in New Delhi issued a statement saying the "unfortunate incident" occurred Thursday following a premature delivery of twins after a five-month pregnancy. The second child was stillborn, the first was then declared dead a short time later.
The babies were placed in plastic bags destined for the crematorium when they families noticed movement, they opened the bag to find the live child who was immediately placed on life support, the hospital said.
"We are shaken and concerned at this rare incident," the hospital said. "We are in constant touch with the parents and are providing all the needed support."
Adding to the controversy, the child's father, identified by Delhi-TV as Ashish, said doctors demanded more money claiming his wife, Varsha, needed an operation due to excessive bleeding. Ashish said physicians demanded extra money to improve the chances of keeping the baby and mother alive.
Delhi police said they were collecting hospital records for the mother and treatment records for the new-born babies. Video footage from the hospital were also was being reviewed, police said.
The hospital, with more than 300 beds, is one of 14 in the Max Healthcare locations across India. It prides itself a "super specialty hospital" on the company's website, boasting a wide array of medical disciplines.