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Legislation of 1767.
England. The eyes of the proprietors of the Company were dazzled by golden visions. On the dispatch bearing the grant of the Diwani being read to the Court of Proprietors they began to clamour for an increase of dividend, and, in spite of the Company's debts and the opposition of the directors, they insisted on raising the dividend in 1766 from 6 to 10 per cent., and in 1767 to 12} per cent.
At the same time the public mind was startled by the enormous fortunes which ‘Nabobs' were bringing home, and the public conscience was disturbed by rumours of the unscrupulous modes in which these fortunes had been amassed. Constitutional questions were also raised as to the right of a trading company to acquire on its own account powers of territorial sovereignty 1. The intervention of Parliament was imperatively demanded.
On November 25, 1766, the House of Commons resolved to appoint a committee of the whole house to inquire into the state and condition of the East India Company, and the proceedings of this committee led to the passage in 1767 of five Acts with reference to Indian affairs. The first disqualified a member of any company for voting at a general court unless he had held his qualification for six months, and prohibited the making of dividends except at a half-yearly or quarterly court ? Although applying in terms to all companies, the Act was immediately directed at the East India Company, and its object was to check the trafficking in votes and other scandals which had recently disgraced their proceedings. The second Act prohibited the East India Company from making any dividend except in pursuance of a resolution passed at a general court after due notice, and directly overruled the recent resolution of the Company by forbidding them to declare
dividend in excess of 10 per cent. per annum until the next session of Parliament. The third and fourth Acts 4 embodied the terms of a bargain to which the Company · For the arguments on this question, see Lecky, ch. xii. 7 Geo. III, c. 48. 3 7 Geo. III, c. 49. * 7 Geo. III, cc. 56, 57.
had been compelled to consent. The Company were required to pay into the Exchequer an annual sum of £400,000 for two years from February 1, 1767, and in consideration of this payment were allowed to retain their territorial acquisitions and revenues for the same period?. At the same time certain duties on tea were reduced on an undertaking by the Company to indemnify the Exchequer against any loss arising from the reduction. Thus the State claimed its share of the Indian spoil, and asserted its rights to control the sovereignty of Indian territories.
In 1768 the restraint on the dividend was continued for another year ?, and in 1769 a new agreement was made by Parliament with the East India Company for five years, during which time the Company were guaranteed the territorial revenues, but were bound to pay an annuity of £400,000, and to export a specified quantity of British goods. They were at liberty to increase their dividends during that time to 12 per cent. provided the increase did not exceed 1 per cent. If, however, the dividend should fall below 10 per cent. the sum to be paid to the Government was to be proportionately reduced. If the finances of the Company enabled them to pay off some specified debts, they were to lend some money to the public at 2 per cent.3
These arrangements were obviously based on the assumption that the Company were making enormous profits, out of which they could afford to pay, not only liberal dividends to their proprietors, but a heavy tribute to the State. The assumption was entirely false. Whilst the servants of the Company were amassing colossal fortunes, the Company itself was advancing by rapid strides to bankruptcy. “Its debts were already estimated at more than six millions sterling. It supported an army of about 30,000 men. It paid about
| This was apparently the first direct recognition by Parliament of the territorial acquisitions of the Company. See Damodhar Gordhan v. Deoram Kanji (the Bhaunagar case), L. R. 1 App. Cas. 332, 342. ? 8 Geo. III, c. I.
9 Geo. III, c. 24.
one million sterling a year in the form of tributes, pensions, and compensations to the emperor, the Nabob of Bengal, and other great native personages. Its incessant wars, though they had hitherto been always successful, were always expensive, and a large portion of the wealth which should have passed into the general exchequer, was „till diverted to the private accounts of its servants 1.' Two great calamities hastened the crisis. In the south of India, Hyder Ali harried the Carnatic, defeated the English forces, and dictated peace on his own terms in 1769. In the north, the great famine of 1770 swept away more than a third of the inhabitants of
Bengal. Pecuniary Yet the directors went on declaring dividends at the rates embarrassments of 12 and 12} per cent.
At last the crash came. In the in 1772. spring session of 1772 the Company had endeavoured to
initiate legislation for the regulation of their affairs. But their Bill was thrown out on the second reading, and in its place a select committee of inquiry was appointed by the House of Commons. In June, 1772, Parliament was prorogued, and in July the directors were obliged to confess that the sum required for the necessary payments of the next three months was deficient to the extent of £1,293,000. In August the chairman and deputy chairman waited on Lord North to inform him that nothing short of a loan of a million from the public could save the Company from ruin.
In November, 1772, Parliament met again, and its first step was to appoint a new committee with instructions to hold a secret inquiry into the Company's affairs. This committee presented its first report with unexpected rapidity, and on its recommendation Parliament in December, 1772, passed an Act prohibiting the directors from sending out to India a commission of supervision on the ground that the
Company would be unable to bear the expense 2. Legisla- In 1773 the Company came to Parliament for pecuniary tion of
assistance, and Lord North’s Government took advantage 1773. · Lecky, iv. 273.
Geo. III, c. 9.
of the situation to introduce extensive alterations into the system of governing the Company's Indian possessions 1.
In spite of vehement opposition, two Acts were passed through Parliament by enormous majorities. By one of these Acts ? the ministers met the financial embarrassments of the Company by a loan of £1,400,000 at 4 per cent., and agreed to forgo the Company's debt of £400,000 till this loan had been discharged. The Company were restricted from declaring any dividend above 6 per cent. till the new loan had been discharged, and above 7 per cent. until the bond debt was reduced to £1,500,000. They were obliged to submit their accounts every half-year to the Treasury, they were restricted from accepting bills drawn by their servants in India for above £300,000 a year, and they were required to export to the British settlements within their limits British goods of a specified value. The other Act was that commonly known as the Regu- The Regu
lating Act lating Act 3. To understand the object and effect of its provisions brief reference must be made to the constitution of the Company at the time when it was passed.
At home the Company were still governed in accordance with the charter of 1698, subject to a few modifications of detail made by the legislation of 1767. There was a Court of Directors and a General Court of Proprietors. Every holder
1 The history of the East India Company tends to show that whenever a chartered company undertakes territorial sovereignty on an extensive scale the Government is soon compelled to accept financial responsibility for its proceedings, and to exercise direct control over its actions. The career of the East India Company as a territorial power may be treated as having begun in 1765, when it acquired the financial administration of the provinces of Bengal, Behar, and Orissa. Within seven years it was applying to Parliament for financial assistance. In 1773 its Indian operations were placed directly under the control of a governor-general appointed by the Crown, and in 1784 the Court of Directors in England were made directly subordinate to the Board of Control, that is, to a minister of the Crown. 2 13 Geo. III, c. 64.
13 Geo. III, c. 63. This Act is described in its short title' as an Act of 1772 because Acts then dated from the beginning of the session in which they were passed.
of £500 stock had a vote in the Court of Proprietors, but the possession of £2,000 stock was the qualification for a director. The directors were twenty-four in number, and the whole of them were re-elected every year.
In India each of the three presidencies was under a president or governor and council, appointed by commission of the Company, and consisting of its superior servants. The numbers of the council varied !, and some of its members were often absent from the presidency town, being chiefs of subordinate factories in the interior of the country. All power was lodged in the president and council jointly, and nothing could be transacted except by a majority of votes. So unworkable had the council become as an instrument of government, that in Bengal Clive had been compelled to delegate its functions to a select committee.
The presidencies were independent of each other. The Government of each was absolute within its own limits, and responsible only to the Company in England.
The civil and military servants of the Company were classified, beginning from the lowest rank, as writers, factors, senior factors, and merchants. Promotion was usually by seniority. Their salaries were extremely small ?, but they made enormous profits by trading on their own account, and by money drawn from extortions and bribes. The select committee of 1773 published an account of such sums as had been proved and acknowledged to have been distributed by the princes and other natives of Bengal from the year 1757 to 1766, both included. They amounted to £5,940,987, exclusive of the grant made to Clive after the battle of Plassey. Clive, during his second governorship, made great efforts to put down the abuses of private trade, bribery, and extortion,
1 They were usually from twelve to sixteen.
2 In the early part of the eighteenth century a writer, after five years' residence in India, received £10 a year, and the salaries of the higher ranks were on the same scale. Thus a member of council had £80 a year. When Thomas Pitt was appointed Governor of Madras in 1698 he received £300 a year for salary and allowances, and £100 for outfit.