The incident took place in a private facility called Max Hospital on November 30 when doctors handed over the baby and his twin brother in a plastic bag telling the family that both the children were stillborn due to their premature birth.
According to local media, the grandfather said the family rushed the baby back to a nearby hospital where they were told their baby boy was still alive.
"When we opened the bag, we found the boy breathing".
As part of its action, Max Healthcare had made a decision to terminate the services of two doctors allegedly involved in the case of a premature baby being wrongly declared dead, the group said in a statement.
Grandfather Praveen Malik told CNN that the doctors initially said the boy, the survivor of a pair of twins, was in critical condition, but two hours later they officially declared him dead.
"We didn't get anything from the government except false promises", he said. "We are in constant touch with the parents and are providing all the needed support".
The hospital noted that while the termination of employment for two of the hospital's doctors reflects a "commitment to higher standards of care", it is not a statement which finds the doctors at fault. Family members are unsure if the newborn will survive.
An inquiry into the incident is underway, with four medical staff who were allegedly part of the team that declared the baby dead being questioned on Monday.
Jagat Prakash Nadda, the minister of health and family welfare, Saturday, condemned the incident, saying: "Very unfortunate incident, have asked the Delhi government to look into the matter and take necessary action". One was a private hospital charging Rs 15 lakh from a dengue patient and another was a hospital wrongly declaring an infant dead.
After widespread outrage and protests outside the hospital led by the parents of the infants, the police registered a complaint alleging medical negligence by MAX Hospital. Senior police sources said that if the allegations were found to be true, the hospital might be charged for extortion. Health Minister Satyendar Jain called it a case of "shocking criminal negligence" and said the hospital's license could be canceled if medical negligence is found.