Which of the following statements regarding consolidation of British power in 18th century Bengal is/are correct? 1. The Nawab granted the Company the Nizamat powers in 1765. 2. The duties of collecting revenues and administration of justice were entrusted with the European officials of the East India Company. Select the correct answer using the code given below :

1. The Decisive Turn: Battle of Buxar and Treaty of Allahabad (basic)

To understand how a trading body like the East India Company became the political master of India, we must start with the Battle of Buxar (1764). Unlike the Battle of Plassey, which was largely won through internal conspiracy, Buxar was a decisive military clash. The British forces, led by Major Hector Munro, defeated the combined armies of three major powers: Mir Qasim (Nawab of Bengal), Shuja-ud-Daula (Nawab of Awadh), and the Mughal Emperor himself, Shah Alam II Rajiv Ahir. A Brief History of Modern India, Chapter 5, p.91. This victory demonstrated the military superiority of the British and made them the primary contenders for supremacy over all of India Bipin Chandra, Modern India (NCERT), The British Conquest of India, p.70.

The legal foundation of British rule was laid shortly after through the Treaty of Allahabad (1765). Under this treaty, Robert Clive secured the Diwani rights from Shah Alam II. This meant the Company officially became the revenue collector for the provinces of Bengal, Bihar, and Odisha History, Class XI (Tamilnadu state board), Chapter 17, p.265. In return, the Emperor was given an annual tribute and the districts of Allahabad and Kara, which were surrendered by the Nawab of Awadh as part of his war indemnity Rajiv Ahir. A Brief History of Modern India, Chapter 5, p.92.

This arrangement gave birth to the Dual System of Government (1765–1772). Under this system, administrative functions were split into two categories:

Function	Power Type	Controlled by...
Diwani	Revenue Collection & Civil Justice	The Company (via Indian deputies)
Nizamat	Military, Police, & Criminal Justice	The Nawab (nominally)

Crucially, the Company did not initially use European officials to collect taxes or manage justice. Instead, they appointed Indian officials—Mohammad Reza Khan for Bengal and Raja Shitab Rai for Bihar—as Deputy Diwans to carry out the work Rajiv Ahir. A Brief History of Modern India, Chapter 5, p.93. This allowed the British to enjoy authority without responsibility: they controlled the money and the military power, while the Nawab was left with the responsibility of administration without any actual resources to fulfill it.

Sources: Rajiv Ahir. A Brief History of Modern India (2019 ed.). SPECTRUM., Chapter 5: Expansion and Consolidation of British Power in India, p.91-93; Modern India, Bipin Chandra, History class XII (NCERT 1982 ed.), The British Conquest of India, p.70; History, class XI (Tamilnadu state board 2024 ed.), Chapter 17: Effects of British Rule, p.265

2. Diwani vs. Nizamat: Understanding the Two Pillars of Power (basic)

After the decisive Battle of Buxar in 1764, the East India Company (EIC) transitioned from being a group of mere traders to the de facto masters of Bengal. However, they didn't want the headache of daily governance yet. To manage this, Robert Clive introduced the Dual System of Government (1765–1772). This system rested on two distinct pillars of power: Diwani and Nizamat. Rajiv Ahir, A Brief History of Modern India, Chapter 5, p.93

Think of Diwani as the 'Power of the Wallet.' It involved the right to collect land revenue and manage civil justice. Through the Treaty of Allahabad (1765), the Mughal Emperor Shah Alam II granted these rights to the Company for Bengal, Bihar, and Odisha. On the other hand, Nizamat was the 'Power of the Sword' — covering military defense, police, and criminal justice. The Nawab of Bengal was forced to transfer these powers to the Company, although nominally he remained the head of state. Rajiv Ahir, A Brief History of Modern India, Chapter 5, p.93

The 'Dual' nature of this system meant that while the Company held the real power, they did not take direct responsibility for administration. Instead, they appointed Indian officials, such as Mohammad Reza Khan (for Bengal) and Raja Shitab Rai (for Bihar), to act as Deputy Diwans. These Indian officials did the actual work of tax collection and policing, while the British enjoyed the profits. This created a tragic situation where the Company had authority without responsibility, and the Nawab had responsibility without power. Vivek Singh, Indian Economy, Chapter 5, p.190

Feature	Diwani Rights	Nizamat Rights
Nature	Fiscal & Civil (The Wallet)	Administrative & Police (The Sword)
Source	Granted by Mughal Emperor	Transferred by Nawab of Bengal
Primary Function	Revenue collection and civil law	Maintaining law and order, criminal justice

Sources: A Brief History of Modern India (SPECTRUM), Expansion and Consolidation of British Power in India, p.93; Indian Economy (Vivek Singh), Land Reforms, p.190

3. The Dual System of Government (1765–1772) (intermediate)

After the decisive Battle of Buxar in 1764, the British East India Company (EIC) found itself as the de facto master of Bengal. However, Robert Clive, returning for his second term as Governor, was wary of the Company taking over direct administration immediately. He feared that direct rule by Europeans might incite a coordinated uprising from other Indian powers or invite interference from the British Parliament. To solve this, he introduced the Dual System of Government (1765–1772), an arrangement where the Company held the power while the Nawab of Bengal bore the responsibility Rajiv Ahir. A Brief History of Modern India (2019 ed.). SPECTRUM., Chapter 5, p. 93.

The core of this system lay in the division of administrative functions into two distinct categories: Diwani and Nizamat. Under the Treaty of Allahabad (1765), the Mughal Emperor Shah Alam II granted the Diwani rights (revenue collection) to the Company. Simultaneously, the EIC acquired Nizamat functions (police, military, and judicial powers) from the Nawab. While the Company legally held both, they chose to exercise them indirectly. Instead of appointing European officers to the field, they appointed Indian officials to do the work. Specifically, Mohammad Reza Khan was appointed as the Deputy Diwan for Bengal and Raja Shitab Rai for Bihar Modern India, Bipin Chandra, History class XII (NCERT 1982 ed.), The British Conquest of India, p.71.

This led to a peculiar situation often described as "Authority without Responsibility." The Company collected the wealth of the province but felt no obligation toward the welfare of the people. Conversely, the Nawab was expected to maintain law and order but had neither the funds nor the military power to do so. This lack of accountability resulted in massive corruption, the exploitation of the peasantry, and a total breakdown of administration, which became tragically evident during the Great Bengal Famine of 1770 History, class XI (Tamilnadu state board 2024 ed.), Chapter 17, p. 276.

Function	Rights Holder	Who actually performed the work?
Diwani (Revenue)	East India Company	Indian Deputy Diwans (Reza Khan, Shitab Rai)
Nizamat (Police/Justice)	Nawab (nominally) / EIC (practically)	Indian officials nominated by the Company

Sources: Rajiv Ahir. A Brief History of Modern India (2019 ed.). SPECTRUM., Expansion and Consolidation of British Power in India, p.93; Modern India, Bipin Chandra, History class XII (NCERT 1982 ed.), The British Conquest of India, p.71; History, class XI (Tamilnadu state board 2024 ed.), Effects of British Rule, p.276

4. Early Economic Impact: The Drain of Wealth and Famine (intermediate)

After the Battle of Buxar (1764), the British East India Company transitioned from being mere traders to political masters of Bengal. Through the Treaty of Allahabad (1765), Robert Clive introduced the 'Dual System' of Government. This was a unique, albeit parasitic, arrangement where the Company held the Diwani rights (the right to collect revenue) while the Nawab of Bengal nominally held the Nizamat functions (civil administration and justice). However, the Company exercised authority without any administrative responsibility, leaving the actual task of collection to Indian deputies like Mohammad Reza Khan and Raja Shitab Rai Rajiv Ahir. A Brief History of Modern India (2019 ed.). SPECTRUM., Chapter 5, p. 93.

This administrative chaos birthed the 'Drain of Wealth'. This term, famously articulated later by Dadabhai Naoroji in his book Poverty and Un-British Rule in India, refers to the unilateral transfer of India's resources to Britain for which India received no material return Rajiv Ahir. A Brief History of Modern India (2019 ed.). SPECTRUM., Economic Impact of British Rule in India, p. 548. Between 1758 and 1765 alone, the Company's servants sent home nearly £6 million — an amount four times the total land revenue of Bengal at the time Modern India, Bipin Chandra, NCERT (1982), The Structure of the Government and the Economic Policies of the British Empire in India, 1757—1857, p. 99.

Feature	The Company (Diwani)	The Nawab (Nizamat)
Role	Revenue Collection & Finance	Administration, Peace & Order
Reality	Power without Responsibility	Responsibility without Power

The human cost of this systemic plunder was catastrophic. Under the Dual System, the pressure to maximize revenue was so intense that when the rains failed in 1769, the administration offered no relief. The resulting Great Bengal Famine of 1770 wiped out nearly one-third of Bengal's population (approximately 10 million people). While the drought was a natural hazard, the famine's severity was a direct result of the Company's exploitative policies and the collapse of the local administrative machinery Modern India, Bipin Chandra, NCERT (1982), The British Conquest of India, p. 72.

Sources: Rajiv Ahir. A Brief History of Modern India (2019 ed.). SPECTRUM., Chapter 5: Expansion and Consolidation of British Power in India, p.93; Rajiv Ahir. A Brief History of Modern India (2019 ed.). SPECTRUM., Economic Impact of British Rule in India, p.548; Modern India ,Bipin Chandra, History class XII (NCERT 1982 ed.)[Old NCERT], The Structure of the Government and the Economic Policies of the British Empire in India, 1757—1857, p.99; Modern India ,Bipin Chandra, History class XII (NCERT 1982 ed.)[Old NCERT], The British Conquest of India, p.72

5. Constitutional Evolution: The Regulating Act of 1773 (intermediate)

To understand the Regulating Act of 1773, we must first look at the chaos that preceded it. Between 1765 and 1772, Bengal suffered under the 'Dual System' of government. While the East India Company (EIC) held the power to collect revenue (Diwani), they left the messy business of administration and justice to local Indian officials, leading to massive corruption and a devastating famine. As Rajiv Ahir, A Brief History of Modern India, Expansion and Consolidation of British Power in India, p.93 notes, neither the Company nor the Nawab cared for public welfare. When the Company — despite its riches — asked the British government for a loan to avoid bankruptcy, Parliament realized it could no longer leave a private merchant body to rule a vast empire without oversight.

The Regulating Act of 1773 was a landmark because it was the first step taken by the British Parliament to control and regulate the affairs of the EIC in India. It fundamentally changed the Company’s character, recognizing for the first time that its role was not just commercial, but also political and administrative Rajiv Ahir, A Brief History of Modern India, Constitutional, Administrative and Judicial Developments, p.502. It laid the foundations of a centralized administration by making the Presidencies of Bombay and Madras subordinate to the Governor-General of Bengal in certain matters, whereas they had previously acted independently.

Key structural changes introduced by the Act included:

• Governor-General of Bengal: The Governor of Bengal was elevated to 'Governor-General of Bengal,' with Warren Hastings being the first to hold the title.
• Executive Council: A council of four members was created to assist the Governor-General, with decisions made by a majority vote.
• Supreme Court: A Supreme Court of Judicature was established at Calcutta (1774), comprising one Chief Justice and three other judges.
• Anti-Corruption Measures: To curb the 'Nabob' culture (Company officials returning to England with vast, illicit wealth), the Act strictly prohibited EIC servants from engaging in private trade or accepting presents/bribes from locals.

While the Act was revolutionary, it wasn't perfect. It lacked clarity on the relationship between the Supreme Court and the Governor-General, often leading to legal deadlocks. Consequently, the British Parliament had to pass the Amending Act of 1781 (also known as the Act of Settlement) to rectify these defects M. Laxmikanth, Indian Polity, Historical Background, p.2.

Sources: A Brief History of Modern India (Spectrum), Expansion and Consolidation of British Power in India, p.93; A Brief History of Modern India (Spectrum), Constitutional, Administrative and Judicial Developments, p.502; Indian Polity (M. Laxmikanth), Historical Background, p.2

6. Later Administrative Reforms: Cornwallis and Europeanization (exam-level)

When Lord Cornwallis arrived as Governor-General in 1786, the British administration in India was a chaotic mix of commercial greed and administrative inefficiency. Under the earlier 'Dual System', the Company held power without responsibility, leading to rampant corruption where officials prioritized private trade over public duty Modern India, Bipin Chandra, Administrative Organisation and Social and Cultural Policy, p.108. Cornwallis is famously known as the 'Father of Civil Services in India' because he was the first to organize these services into a structured, professional machinery. He realized that the only way to ensure 'honest and efficient service' was to provide adequate salaries, thereby removing the temptation for bribery and private trade Brief History of Modern India, Rajiv Ahir (Spectrum), Constitutional, Administrative and Judicial Developments, p.513.

A defining, yet controversial, feature of Cornwallis's reforms was the Europeanization of the higher administration. He harbored a deep-seated distrust of Indian officials and believed that British interests could only be safeguarded by British hands. Consequently, he reserved all high-ranking posts for Europeans, effectively barring Indians from the upper echelons of their own governance. This policy was built on the 'Cornwallis Code' of 1793, which also separated revenue administration from judicial functions. By creating a distinct class of 'Civil Servants'—separate from the military and naval branches—he laid the foundation for the modern bureaucratic state, though it remained an exclusively 'Covenanted' (elite British) service for decades Brief History of Modern India, Rajiv Ahir (Spectrum), Constitutional, Administrative and Judicial Developments, p.513, 515.

Feature	Pre-Cornwallis System	Cornwallis Reforms
Focus	Commercial profit & private trade	Professional administration
Salaries	Low, supplemented by 'tips' and trade	Very high, to ensure integrity
Recruitment	Indians and Europeans (often corrupt)	Strictly European for senior posts
Structure	Loose and unorganized	Well-structured Civil Service

Sources: Modern India, Bipin Chandra, Administrative Organisation and Social and Cultural Policy, p.108; Brief History of Modern India, Rajiv Ahir (Spectrum), Constitutional, Administrative and Judicial Developments, p.513; Brief History of Modern India, Rajiv Ahir (Spectrum), Constitutional, Administrative and Judicial Developments, p.515

7. The 'Indian Face' of British Rule: Deputy Diwans (exam-level)

After the Battle of Buxar (1764) and the subsequent Treaty of Allahabad (1765), the British East India Company found itself in a unique predicament. They had acquired the Diwani rights (the right to collect revenue) for Bengal, Bihar, and Orissa, yet they were essentially a group of merchants with no experience in grassroots administration. To bridge this gap, Robert Clive introduced the Dual System of Government (1765–1772), which created what historians often call the 'Indian Face' of British rule. Rajiv Ahir, A Brief History of Modern India, Expansion and Consolidation of British Power in India, p.93

Under this system, the Company held the actual power but avoided the responsibility of governance. Instead of appointing European officials to collect taxes—which might have sparked immediate local resistance or diplomatic friction with other European powers—the Company appointed two Indian intermediaries known as Deputy Diwans. These were Mohammad Reza Khan for Bengal and Raja Shitab Rai for Bihar. By doing this, the British ensured that the hands reaching into the peasants' pockets were Indian, even though the money ultimately flowed into the Company’s coffers. Modern India (Old NCERT), Bipin Chandra, The Structure of the Government and the Economic Policies of the British Empire in India, 1757—1857, p.88

The role of these Deputy Diwans was pivotal. Mohammad Reza Khan, in particular, held immense influence because he also functioned as the Deputy Nazim, effectively acting as a bridge between the Company’s revenue interests and the Nawab’s nominal administrative duties. This arrangement allowed the Company to exercise authority without responsibility, while the Nawab was left with responsibility without power (or funds). The internal reality of this 'Indian Face' is summarized in the table below:

Feature	The Company (The Real Power)	The Nawab & Deputy Diwans (The 'Face')
Functions	Controlled the Army and the Treasury.	Handled justice, police, and daily revenue collection.
Liability	No legal responsibility to the people.	Publicly accountable for administration and order.
Key Personnel	British Governor and Council.	Mohammad Reza Khan & Raja Shitab Rai.

While this system was highly profitable for the Company initially, it proved disastrous for the people. The Deputy Diwans were pressured to squeeze maximum revenue, leading to a total administrative breakdown and the horrific Bengal Famine of 1770. Eventually, in 1772, Warren Hastings abolished this system, removed the Deputy Diwans, and decided that the Company would 'stand forth as Diwan' to manage the administration directly. Rajiv Ahir, A Brief History of Modern India, Constitutional, Administrative and Judicial Developments, p.502

Sources: Rajiv Ahir, A Brief History of Modern India, Expansion and Consolidation of British Power in India, p.93; Modern India (Old NCERT), Bipin Chandra, The Structure of the Government and the Economic Policies of the British Empire in India, 1757—1857, p.88; Rajiv Ahir, A Brief History of Modern India, Constitutional, Administrative and Judicial Developments, p.502

8. Solving the Original PYQ (exam-level)

This question brings together the critical transition from the Battle of Buxar to the Treaty of Allahabad (1765). As you have learned in your conceptual path, this period established the Dual System of Government in Bengal. Statement 1 is correct because the Nawab of Bengal, following his defeat, was forced to transfer Nizamat powers (military defense, police, and administration of justice) to the East India Company. Simultaneously, as noted in Rajiv Ahir, A Brief History of Modern India (SPECTRUM), the Mughal Emperor granted the Diwani rights, giving the British legal control over the revenues of Bengal, Bihar, and Odisha.

To arrive at the correct answer, you must distinguish between legal authority and administrative execution. While the Company held the power, Statement 2 is a classic UPSC trap. The British did not initially use European officials for day-to-day tasks; instead, they appointed Indian Deputy Diwans, such as Mohammad Reza Khan and Raja Shitab Rai, to collect revenue and preside over courts. According to History, Class XI (Tamilnadu State Board), the Company preferred this 'masked' authority to avoid administrative responsibility and the scrutiny of other European powers. It was only later, under Warren Hastings in 1772, that the Company took direct charge and abolished the Dual System.

Therefore, (A) 1 only is the correct answer. Options B and C are incorrect because they ignore the specific historical nuance that 18th-century consolidation relied on intermediaries rather than direct European administration. When tackling such questions, always look for the timing of administrative shifts—the transition to direct rule by European officials was a gradual process that only intensified after the Regulating Act of 1773.