Causes of the Regulating Act 1773 - Section 1 with Video

 

The Regulating Act, 1773

The Regulating Act was enacted during the tenure of Prime Minister Lord North of Britain during the reign of King George III. The Act aimed at "placing the affairs of the Company on a solid, clear and decisive establishment." Many scholars from different streams consider it as the starting point of the development of the Constitution of India.

The East India Company was allowed to trade in Asia. It was given the power to regulate its conduct when it was away from its country. It was an extended privilege. However, when the company acquired political power over the territories in foreign lands, the people of England raised the issue of the legal status of the company. The ruling class of England had many commercial interests in the company and objected to such activities of the company in Asia. They forced the parliament to probe the actual nature of the working of the company. The multiple interests of people in England and the involvement of the parliament in the probe of the activity of the company identified many objections to the status of the company. These forces identified the following issues and problems which demanded a legislative solution. It ended with the enactment of the Regulating Act. It was a critical and legal situation that demanded a legislative solution, and the result was the Regulating Act.

Company's Territorial Sovereignty and Constitutional Anomaly

The charter given to the Company permitted it to conduct trade with India and other Asian territories through ships and establish trading centres with the approval of the native rulers of India and other Asian territories. In 1765, the employees of the company had acquired the right of collection of revenue in Bengal and some territories in India. It was a contradictory situation.  The company was a trading corporation and it had become a political authority in India. The new status of the company was strongly objected to by the people in England.

Double Government and Administrative Confusion

The East India Company was a trading company. In no way was it allowed to get involved in the activity of acquiring territorial possessions, which granted it any political authority on foreign territories. In 1757, the company fought the battle of Plassey and it was followed by a battle of Buxar in 1764. These battles were followed by the Allahabad Treaty. The terms of the treaty had established the company as a de facto ruler of Bengal, Bihar and Orissa and it emerged as a territorial power. As per British sensibility, it was only the Crown that could acquire the territorial possession. The English people could not become the sovereigns when the Crown was there. Apart from that, the employees who were real participants in the operations in India acquired wealth in such a quantity that it attracted the attention of every concerned person in England.  

Dual government Confusion:

Clive established a system of administration which was termed as a Dual government. The magistracy, the police, the revenue official and other authorities did not have a consensus on the law which was to be adopted. There was total confusion. It was further confounded with the right of private trade allowed to the company servants. In addition to that, there was no coordination among the governors of Bengal, Madras and Bombay. There was total anarchy and confusion in the territories where the Company officers had acquired the political authority. It demanded a concrete resolution of the whole situation.

Company Servants turned English Nabobs:

Captain Lawrence supervised the rise of Clive in the military service of the East India Company in India. Lawrence retired and returned to England. He lived a life of poverty. When Clive returned to England, he returned loaded with wealth and constituted a yearly pension for his patron, Lawrence, out of gratitude. The English people watched in amazement the spendthrift activities of Clive. Clive was not a singular case. The Company servants, who derived a very low salary, returned to England filled with overflowing coffers, especially after the Treaty of Allahabad in 1765. The wealth and extravagance of the Company servants became a cause of jealousy for the English ruling class. The English politicians gave them the title of English Nabobs in disdain. The English Nabobs not only displayed their wealth unashamedly but also tried to buy their way into the politics of England. The public opinion turned against English Nabobs. They were accused of adopting sharp practices for obtaining their wealth in India. The English ruling class demanded the intervention of the Government of Britain in the working of the company.  

Administrative Setup of the Company in England

The administration of the company in England was conducted by two bodies. It was in the hands of the Court of Proprietors and the Court of Directors. As per the constitution of the company, there were twenty-four Directors whom the Court of Proprietors elected. Those twenty-four Directors looked after the regular administration of the company.  Any person who held shares worth 500 pounds for six months before the elections of the Directors could vote in their election and also be eligible to get elected to the post of Director. The post of Director was the main attraction as it was the directors who disposed of the Company's patronage. Secondly, there were many hidden interests to shield the nefarious activities of the company servants who had worked for the interests of directors. Thirdly, the company servants, who returned with enormous wealth, made the scramble for votes and posts of directors a dirtier game by obtaining membership in the Court of Proprietors. Fourthly, the people involved in the politics of company administration in England were also active participants in the politics of England. There were clear flaws in the constitution and working of administration of the company. It did not escape the notice of the Government of Britain.

Financial Difficulties of the Company

By the Treaty of Allahabad, 1765, the Company in India received the Diwani rights. Clive reported to the directors that it would fetch £4000000 (Forty Lakhs) from the revenue of Bengal and £1650000 (16.5 Lakhs) from the income of the Company through trade. Therefore, the total projected income added up to 56.5 Lakhs. (In Indian rupees, if an exchange rate of rupee 10 for one pound is assumed as it was adopted in the 19th century, then the income of the company had grown from 1.6 crores to 5.56 crores within one year.) It dazzled the proprietors of the company. They increased the dividend of the company from 6% to 10% in 1766 and to 12% in 1767. A single share of £100 went up to £267 during this period.

The renewal of the Charter of the company was pending for some time. It attracted the attention of the Government of Britain. A negotiation started between the company and the government. By the Act of 1767, the Government allowed the company the privilege to retain its territorial gains in India along with the revenue from Bengal by depositing £400000 per annum as Parliamentary charges.

In the meantime, the company in India faced the Mysore war, which increased its expenditure without any gains. The company was also paying huge tributes and pensions to the Indian rulers. To this expenditure, the huge dividend and Parliamentary charges were added and increased its financial burden. In 1770, Bengal suffered a famine, which reduced its revenue collection. In 1772, the financial crises became too acute, and the company virtually became bankrupt. It applied for a loan from the Bank of England. The Bank of England had extended its loan on a regular basis, but in 1772, it refused to extend any more credit. Then, the company turned to the Government for help and applied for a loan of £1000000. The government of Britain had faced a similar situation in the case of another company named South Sea Company. The share of South Sea Company had risen from its base price of £100 to 1034 and then suddenly fell to 135. The South Sea Company bubble had ruined many subjects of the Kingdom. The incidence was quite fresh for the Government. The government was very cautious when East India approached for financial help. The Government decided to regulate the affairs of the company and brought in the Regulating Act of 1773.

Privilege of the Company and Public Opinion:

Robert Grant, in his book, A Brief Sketch of East India Company, published in 1812, stressed the issue of a conflict between the desire of the Company to safeguard its privilege as a company constituted under the direct Royal Charter and the strong public opinion which demanded to dismantle all such privileges. The fight among the various members of the company made it an issue of debate in the Parliament also. As a result, the Government got the chance to regulate the affairs of the company by a fresh act.

 

Enquiry by the Parliament Committees:

The affairs of the East India Company had become a subject of heated discussion and debate in Parliament. As a result, one Select Committee and another Secret Committee were constituted by the Parliament. The Select Committee submitted twelve reports, and the Secret Committee submitted six reports on the working and conduct of the company. All the eighteen reports of the Parliament Committees strongly condemned the Company for its misrule. Lord North, the Prime Minister at that time decided to introduce a Bill to regulate the affairs of the company to resolve the issue.

Mr. Edmund Burke, who was associated with the company and was a member of the Parliament, strongly resisted this move in the parliament. East India Company petitioned against the bill and called it an unjustified act. However, the government of Lord North was determined to introduce the Bill. Lord North moved the bill in the Parliament on May 18, 1773. The bill was passed in both houses with a comfortable majority. The Act which came into existence was called the Regulating Act of 1773. It was also accompanied by another legislation which provided a loan to the company for £1400000 (Fourteen Lacs) at 4% interest to relieve the company from its financial crises. The power to monitor the activities of the company by the Parliament was thereby legally established. The company was allowed to conduct its trade in India.