REGULATING ACT, 1773

Causes:
1) Demand for free trade:
• Theory of Liberalism.
• Principle of Laissez faire.
• Vocal protests to terminate the monopolistic rights of the EIC with India.

2) Agitation for Parliamentary control over Indian affairs:

• EIC enjoyed exclusive monopolistic rights to trade with India; this special privilege gave rise to
jealousy and public resentment in England.
• The demand for free trade became so strong that the parliament decided to revoke the monopoly
and allow every British subject to trade in the East until prohibited by a parliamentary law.
• EIC averted the danger by obliging British government with enormous loans.

3) Constitutional difficulties:
• EIC acquired the Diwani (The right to collect revenue) and Nizamat (The right to administer criminal
justice) and became a territorial power.
• Its quasi-sovereign position created a constitutional difficulty.
• The English constitution did not permit anybody to possess territory except in the name of the
crown; hence there was a demand by the British public to take over the company’s territories by
the crown.
• As the company continued to act in the capacity of Dewan of the Mughal Emperor, the Crown could
not take that subordinate role upon itself.
• Direct control of the crown over the provinces of Bengal, Bihar and Orissa was likely to displease
the Mughal Emperor, the Marathas and other native ‘Rajas’.

4) Bribe, Private trade and Gifts to the company’s servants:

• The British goods were either totally exempted from paying local taxes or were charged only token
excise duties. The servants of the company began to abuse their privileges and earned a fortune by
trading themselves without paying any tax.
• They also began to accept presents from Indian businessmen and other civilians in return for favours
done to them.
• When they returned to England with their booty, they lived a luxurious life like the 'Indian Nawabs'.
• Their fat income enabled them to capture parliamentary seats and to exert their influence on the
policies of the British Government.

5) The pitiable condition of the people of Bengal:

 • The system of Double Government in Bengal led to a reign of corruption and oppression in the
province.
• Nobody cared about the welfare of the people. If an aggrieved person approached the officers of
the Nawab with his complaint, he was told that the Nawab was helpless and the real power was
vested in the company. If the same person appealed to the British officers, he was put off with the
excuse that the administrative power lay with the Nawab and the company was nowhere in the
picture.
• There was no positive law and there was very little Justice in the country.
• The administration of the 'English Nabobs' was thoroughly corrupt.
• The sufferings of the people were aggravated by the famine that broke out in 1770. The famine
reduced the population of Bengal by one-fifth. The starving people migrated to other provinces,
which meant a huge loss of revenue to the company.
• The company in turn followed the cruelest policy of raising the prices of daily necessities and
enhancing taxes.
• The piteous cry of the famine stricken Bengal reached the British people and roused their
sympathies.
• The public opinion in England swung in favour of a thorough investigation into the causes of the
famine.

6) Defeat of the Company:

• In 1769, the Company suffered an inglorious defeat at the hands of Haider Ali, the Sultan of Mysore
who also compelled the Madras Government to sign a treaty on his own terms.
• When this news reached England the British Government as well as the Public was greatly shocked.
• England took this defeat as a severe blow to her prestige.

7) Apprehensions about the failure of the Company:

• When in 1765 the company acquired the Diwani of Bengal, Bihar and Orissa, the Directors of the
company became very happy.
• Clive speculated that the company’s gross income from the land alone would touch the figure of
£5,000,000 while its net profit would not be less than £1,650,000. Encouraged by Clive’s report, the
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directors raised the dividends from 6 percent to 10 percent and soon after to 122 percent.
• The demand for company’s shares went up suddenly, then there was a rumour that all this success
of the company was a mischievous deception and the company was heading to bankruptcy, the
shareholders in sheer fright began to demand quick action by the Parliament to safeguard their
interests.

8) Evils of the Dual System:

• The Dual control in the three provinces of Bengal, Bihar and Orissa wrecked the economic life of the
people.
• The unnatural division of administration into two halves produced confusion, chaos and corruption
and the servants of the company behaved in the most irresponsible manner.
 • The pathetic condition of the Indians under the company’s rule naturally drew attention of the
British public and provoked the parliament to mend the Company’s affairs through legislation.

9) Non-payment of an annuity of £40 lakhs as tribute by the EIC:

• The parliament by an act passed in 1767 required the company to pay an annual sum of £40,00,000
for its monopolistic privileges. The continued to pay the sum till 1772, after which it failed due to its
weak financial position.
• Non-payment of this annual sum gave an excuse to the parliament to intervene in the affairs of the
company.

10) Company’s request for a loan:

• When the company was driven to financial crisis, it approached the British Government for a loan.
• The British government was already on the look for such an excuse to probe into company’s affairs.
• Thus the company’s application for a loan of one million led to a parliamentary intervention.

Introduction of Lord North’s Bill, May 18, 1773:

The British government had no alternative but to accede to the demand of the British people.

Two parliamentary committees were formed to look into the company’s administration. One of them was
called Select committee and the other Secret parliamentary committee.

Both these committees in their reports condemned the company for tits misrule in India.

On the basis of the committees report Lord North passed a bill in the parliament on 18 th May, 1773 which
came to be known as the Regulating Bill.