The Early Administrative Structure; The Regulating Act (1773), From Diarchy to Direct Control: Part II

The Regulating Act (1773)

Background:

The Regulating Act was passed by Lord North’s Government in 1773. It was designed to remove several evils inherent in the Company and state of affairs in India:

• The first association of the British with the work of administration under what is called the system of Dual Government (1765 to 1772) was a discreditable and shameful page of British history.
• Then came the famine of 1770 in Bengal which was one of the most appalling disasters in Indian history. The company’s agents were blamed for the complete collapse of the government leading to the famine. selfstudyhistory.com
• No co-ordination between the three Presidencies
  • The territories of the Company in India were divided into three Presidencies- Bengal, Madras and Bombay.
  • Each presidency was headed by a Governor-in-Council, which was responsible to the Directors in England.
  • There was little co-ordination and co-operation between them in India.
  • Moreover, Presidencies in India made wars and concluded treaties at their own direction. They not only create more problems for the Company, but also brought disgrace and disaster.
  • The British Government could not tolerate such hazardous events and chaotic affairs. Hence state intervention was thought to be necessary.
• Administrative Confusion:
  • The system of Dual Government devised by Clive in Bengal in 1765 made the confusion worse confounded. Corruption was at climax. Confusion and chaos prevailed.
  • Cases of plunder and oppression were the order of the day. The unfortunate divorce of power from responsibility made the system suffer from all possible defects.
  • Thus parliament could not remain a mere passive spectator of the Company’s affairs.
• Richness of the Servants of the Company:
  • The rich resources of Bengal had fallen into the hands of the Company whose proprietors raised dividends to 10 percent in 1767 and proposed in 1771 to raise the rate further to 12.5%.
  • The Company’s English servants took advantage of their position to make quick fortunes through illegal and unequal trade and forcible collection of bribes and gifts from Indian chiefs and zamindars.
  • Clive returned to England at the age of 34 with wealth and property yielding 40,000 pounds a year.
  • The Company’s high dividends and the fabulous wealth brought home by its officials excited the envy, jealousy and contempt of the other sections of British society.
  • Merchants kept out of the East by monopoly of the company, the growing class of manufacturers and, in general, the rising forces of free enterprises in Britain wanted to share profitable Indian trade and the riches of India which the Company and its servants alone were enjoying.
    • They, therefore, worked hard to destroy the company’s trade monopoly and in order to achieve this, they attacked the Company’s administration of Bengal. They also made the officials of the Company who returned from India (like Clive and Warren Hastings) the special target.
  • The officials were given the derisive title of nabobs and were ridiculed in the press and on the stage. They were boycotted by the aristocracy and were condemned as the exploiters and oppressors of the Indian people.
  • In March of 1772 the Directors had declared another dividend of 12.5 % in August they asked the Government for of loan of £ 1 million. Why should a Company go bankrupt, members pertinently asked, when its servants were returning to England with their pockets bulging with gold.
  • These factors made the Company unpopular.
• Non-Payment of tribute by the Company:
  • In 1766, it was agreed that the Company would pay 4,00,000 Pound as tribute to the British Government.
  • Though for some years this tribute was paid, subsequently the Company showed its inability to pay it on the plea that it had been wrecked financially because of the loss of tea sales to America since 1768 as Dutch were able to enter the American Markets.
    • The East India Company owed money to both the Bank of England and the government; it had 15 million lbs of tea rotting in British warehouses.
  • The mismanaged Finances made the company almost insolvent and the company was forced to apply to the British Government for a loan.
• The bankruptcy of the Company:
  • The Dual Government in Bengal brought disastrous results. The administration of Bengal was completely ruined and so were the finances of the Company.
  • The Company, therefore, was obliged to seek loan from the British Government.
    • It came as a surprise to the British Government as nobody could imagine that the Company, whose servants were returning to England loaded with gold, was running under financial loss.
    • It was an ill chosen moment for the Company to go bankrupt, especially when it had so few friends, being hated by all and sundry.
    • In applying for loan from the Government, the Directors of the Company the death warrant of their Company’s independence.
  • A secret committee was appointed and it reported that the financial condition of the company was really deplorable.
  • The British Government sanctioned a loan of 1.4 million pound at 4% annual interest to the company on certain condition such as the obligation to submit its accounts to the British treasury. But, at the same time, it passed the Regulating Act with a view to regulating the administration of the Company.
• The East India Company was basically a trading farm that made business over a vast area of India but also maintained an army to protect its interests.
  • PM Lord North decided to start Governmental control, as East India Company had no experience in ruling it conquered few areas.

• The British Parliament appointed two committees:

  • • Secret Committee
    • Select committee.
  • Based on the recommendations of the two committees there two Act were passed:
    • The first granted the Company a loan of £ 1,400,000 at 4% interest on certain conditions.
    • The Second was Regulating Act, 1773

• Lord North decided to overhaul the management of the East India Company and to provide some form of legal government for the Indian possessions of the East India Company with the Regulating Act 1773.
  • This was the first step along the road to government control of India.
  • The Act set up a system whereby it supervised (regulated) the work of the East India Company but did not take power for itself.
  • East India Company had a very powerful lobby in Parliament in spite of the financial crises of the Company. The Shareholders along with this lobby of Parliament opposed the act.
• Since the Government in Britain regulated the company and did not take it over, it was termed “Regulating Act”.
• Hence the Regulating Act of 1773 was passed because:
  • Being a trading company, EIC had difficulties in Governance.
  • Address the problem of management of company in India.
  • Address the problem of corruption
  • Terrible famine in Bengal
  • Address the problem of dual system of governance instituted by Lord Clive
  • To control the company, this was so far a business entity but now a semi-sovereign political entity in India
  • Lack of proper judicial administration
  • Company’s defeat in 1769 at the hands of Hyder Ali

Provisions of Act:

• The Act remodelled the constitution of the Company both in England and in India.
• The Regulating act of 1773 permitted the Company to retain its former possessions and power in India but the management was brought under control by the British Government.
• Election for Directors:
  • The directors of the company were elected for four years (hitherto elected every year).
  • The number of Directors was fixed at 24, one fourth retiring every year.
  • The retiring Directors were not entitled to be elected again.
  • In England the right of vote in the Court of Proprietors was raised from £ 500 to £ 1,000.
• In order to assert British Cabinet’s control over the company:
  • The directors were required to place regularly all their correspondence, regarding civil and military affairs with the Indian authorities, before the secretary of the state in England.
  • All correspondence regarding to revenues in India was required to be placed before the Treasury in England.
• The Act limited Company dividends to 6% until it repaid a GB £1.5 Million loan and restricted the Court of Directors to four-year terms.
• The Regulating Act laid down the fundamental principle of honest administration by:
  • providing that “no person holding or exercising any civil or military office under the Crown shall accept, receive or take directly or indirectly any persent, gift, donation, gratuity or reward, pecuniary or otherwise.”
  • prohibiting the servants of company from engaging in any private trade
• Governor General and Council:
  • The status of governor of Bengal was raised to that of governor general, to be assisted by a council of four members.
  • The vote of the majority was to bind the Council, the Governor General having a casting vote when there was an equal division of opinion.
  • Three members of the Council formed a quorum.
  • The first Governor General (Warren Hastings) and Councillors (Philip Francis, Clavering, Monson and Barwell) were named in the Act.
  • They were to hold office for five years, and could be removed earlier only by the King on the recommendation of the Court of Directors.
    • Future appointments were to be made by the Company.
  • The Governor General in Council were vested with the civil and military government of the Presidency of Fort William in Bengal.
    • They were to superintend and control the subordinate Presidencies of Madras and Bombay in the matters of waging war or making peace with the Indian states, except in emergency situations.
    • The governor general in council was given all the power
      • to govern the company’s territorial acquisition in India,
      • to administer the revenue of Bangal, Bihar, Orissa and
      • to supervise and control the general civil and military government of the Presidency.
  • The Governor General and the Council were to keep the court of directors fully informed of all their activities affecting the interests of the company and they were also to work in entire obedience to the orders and instructions of the court of directors.
• India’s First Supreme Court: 
  • The Act empowered the Crown to establish by charter a Supreme Court of Judicature, consisting of a Chief Justice and three puisne judges.
  • The Supreme Court was constituted in 1774 at Fort William at Calcutta with Sir Elijah Impey as Chief Justice and Chambers, Lemaister and Hyde as the Puisne judges.
  • Sir Elijah Imphey was the first Chief Justice.
  • The Supreme Court was the supreme judiciary over all British subjects including the provinces of Bengal, Bihar and Orissa.
  • Position of the Supreme Court Calcutta: 
    • There was nothing comprehensible in the act with regard to the relation of the Supreme Court with the Government of Bengal.
    • The Supreme Court subjected the company to the control of British Government.
  • Jurisdiction:
    • Supreme court was given very wide but vague jurisdiction.
    • The supreme court was vested with the jurisdiction over:
      • all British subjects (though it was not clear who were British subject? If Calcutta was under British, all residents could be British Subjects?),
      • their servants and
      • the persons employed by the company.
    • Cases against company and corporation of Calcutta also placed under the court Civil jurisdiction: His Majesty’s subjects or persons employed directly or indirectly by the company or persons who have voluntarily agreed in writing to refer their disputes to the supreme court were under the jurisdiction.
      • Various terms like the “British subjects”, “subjects of His majesty”, “persons employed directly or indirectly in the service of the company” were used to define the personal jurisdiction of the Supreme Court.
      • The significance of these terms by no means clearly defined.
      • All the public servants of the Company were made amenable to its jurisdiction.
      • All British subjects in Bengal, European and Indian, could seek redress in the Supreme Court against oppression.
      • The Supreme court could also entertain suits, actions and complaints against persons in the Company’s service or any of His Majesty’s subjects.
    • The Court could determine all types of cases and grant redress through all the methods then in vogue in English judicial procedure.
      • The Court was given both original and appellate jurisdiction.
      • Following the British custom, the Court heard these cases with the help of a jury of British subjects.
    • Supreme Court was also given permission to accept cases against the Governor General and any of his Council members. But court had no power to arrest or imprison any of them in any action.
  • The Supreme Court was also made to consider and respect the religious and social customs of the Indians.
  • Appeals could be taken from the provincial courts to the Governor-General-in-Council and that was the final court of appeal. The rules and regulations made by the Governor General-in-Council were not to be registered with the Supreme Court.
  • Later an amendment in this act was made (The amending act of 1881), in which the actions of the public servants in the company in their official capacity were exempted from the jurisdiction of the Supreme Court.
• Liberal salaries were provided for the Governor-General (£25,000), each member of the Council (£ 10,000), the Chief Justice of the Supreme Court (£ 8,000) and for each puisne Judge (£ 6000) a year.

Criticism of the Regulating Act 1973:

• The act was by no means satisfactory, as it failed to streamline Indian administration, while the supervision of the British government remained ineffective due to problems of communication.
• There was nothing in the act which could address the people of India, who were paying revenue to the company but now were dying in starvation in Bengal, Bihar and Orissa.
• The Act was based on the theory of checks and balances. In actual practice it broke down under the stress of Indian circumstances and its own inherent defects.
• Governor General at the Mercy of Council:
  • The appointment of the Governor-general and a Council of four members was calculated to improve the state of affairs in Fort William which was earlier governed by a Governor and an unwieldy Council of 12 to 16 members.
  • The Governor-General was not vested with a veto power.
  • The administration in India was hampered by the disunity in the council and disharmony between the council and the governor general.
    • Due to decision of council was to be by majority, many times decisions could not be taken as per Hasting as Governor General in Council was first among equal with no veto.
    • During the first two years the Governor General (Warren Hastings) was perpetually outvoted by the majority in the Council.
    • As a result, the situation worsened day by day and ambiguity of the Act gave rise to a serious conflict between the Governor-General and the members of his Council.
• Vague jurisdiction of the Supreme Court:
  • The ambiguities in the jurisdiction of the Supreme Court and the council created serious conflicts between competing authorities.
    • Nothing clear was mentioned regarding the jurisdiction of the Supreme Court and its relation to the Governor-general in Council was not defined.
    • The Council and the Court were ranged in two hostile camps set against each other on the borderland of debatable jurisdictions.
    • The Governor General in Council could make no laws that the judges did not condescend to notice.
  • The Act did not defined clearly who were the British subjects within the meaning of the Charter of the Supreme Court.
    • In one sense, the whole population of Bengal, Bihar and Orissa were British subjects.
    • In another sense, no one was a British subject who was not an English man born.
    • In third sense, the inhabitants of Calcutta and not the general population of Bengal might be regarded as British subjects.
  • It was also not clarified whether the Supreme Court would hear the cases in accordance with the British Laws or the Native Codes of the Indian people.
    • As the British Judges were familiar only with the British Laws they forced upon the Indian people, what they thought was legally right according to the British law.
      • It was due to this ambiguity that Nand Kumar was hanged to death.
    • There was anomalous relations between the new Supreme Court administering English law, and the country courts already existing in Bengal.
• Inadequate Control of Governor-General over Presidencies and increased vulnerability of the Company:
  • The provincial governors took advantage of the wide manoeuvring space they had been offered by the vague wordings of the act.
  • On the plea of emergency the Presidencies of Madras and Bombay acted on their own discretion and started wars and made alliances without reference to the Governor and Governor-in-Council.
  • The Act could not create goodwill between the Company and the British Government.
  • Moreover, the Company remained extremely vulnerable to the attacks of its enemies as the administration to be corrupt, oppressive and economically disastrous.
• Provisions of the Act were also towards stopping corruption but it failed to do so.
  • The major charges were brought against the first Governor General, Warren Hastings and he was impeached in the trial for corruption.
  • In fact the whole council was divided into two factions based on the corruptions- the Hastings Group and the Francis Group.
  • They fought against each other on the issues of corruption charges alleged on them.
• The Act was a compromise throughout and intentionally vague in many of its provisions. It did not openly assert the sovereignty of the British Crown or invade the titular authority of the Nawab of Bengal.
  • The Act had “neither given the state a definite control over the Company nor the Directors a definite control over their servants, nor the Governor General a definite control over his Council nor the Calcutta Presidency a definite control over Madras and Bombay.”
• All these obscurities and indeterminate character of the act, it seemed, arose from Parliament’s inability to define properly the issue of sovereignty in India.
• Many defects of the Act were removed by the Declaratory Act 1781 (defined more precisely the jurisdiction of the Supreme Court), The Pitt’s India Act 1784 and the Amendment Act of 1786.

But the Regulating Act was still relevant

• The Regulating Act of 1773 was important as it was the first attempt of the British Government to regulate the administration of the Company in India for its better governance.
  • The Regulating Act of 1773 formally recognised parliamentary right to control Indian affairs.
  • Apart from that, territories in India were also subjected to some degree of centralised control.
  • From 1773 onwards, the executive and judicial administration of the country was placed on a regular, though imperfect, footing by parliamentary act.
• It can be said to mark the beginning of a constitution of India and asserted the right of the Parliament to legislate for the country.

Nanda Kumar Case:

• This case is example of corruption, nepotism, injustice during British era.
• Raja Nanda Kumar of Bengal was a big Zamindar.
  • In March, 1775 he laid a letter before the Council member with charging allegation against Warren Hastings.
  • According to the letter Warren Hastings received bribe from former Nawab wife Munni Begum for granting Zamindari.
  • The case was entertained by Council member Sir Philip Francis (he encouraged Nanda Kumar to expose Hasting) and the other members of the Supreme Council of Bengal.
• The council majority decided that Hasting received a sum of Rs.3,45,105 as bribe and directed him to refund the money in the Company’s treasury however Warren Hastings could overrule the Council’s charges.
  • While charges against Warren Hastings were still pending which were subsequently dropped, Nanda Kumar was suddenly arrested at the instances of a Calcutta merchant Mohan Das on a charge of forgery at the instigation of Warren Hasting.
• Nanda Kumar was tried under Elijah Impey, India’s first Chief Justice, was found guilty and hanged in Kolkata in 5 August 1775 as per statute of British parliament.
• Peculiar features of trial:
  • Charge preferred against Raja Nanda Kumar was shortly after he had levelled charges against Warren Hastings.
  • Chief Justice Imphy was a close friend of Hastings.
  • Every Judge of the Supreme Court cross examined the defense witness due to which the whole defense of Nanada Kumar collapsed.
  • After the trail, when Nanda Kumar was held guilty by the court he filed an application for granting leave to appeal to the King-in-Council but the court rejected his application.
  • Nanda Kumar committed the offence of forgery nearly five years ago, i.e much before the establishment of Supreme Court.
  • Neither under Hindu Law nor under Mohammedan Law was forgery regarded a capital crime.
• Warren Hastings was impeached for crimes and misdemeanour during his time in India in the House of Commons upon his return to England, especially for the alleged judicial killing of Nanda Kumar.
  • The House of Lords finally made its decision on April 1795 acquitting him on all charges.
  • The Company subsequently compensated him with 4,000 Pounds Sterling annually.