by John Keay
After agonized debate the directors decided to suspend dividend payments and apply to the Government for a £1 million loan. Stock values immediately plummeted and the Government, sensing another South Sea Bubble about to burst, summoned Parliament. If it was a case of saving the nation’s credit, it was also understood that, in return for the necessary loan, the Company would have to pay dearly in terms of its independence. With this in mind the Secret Committee was soon hammering out the necessary legislative proposals. Meanwhile the Court of Directors, under enormous Ministerial pressure but in the teeth of bitter opposition from the Court of Proprietors, had come forward with its own suggestions. The final bill, which became Lord North’s Regulating Act of 1773, was thus a compromise between these two sets of proposals.
As was to be expected with a piece of panic legislation, it would prove far from satisfactory, compounding the Company’s difficulties rather than solving them. It was, however, the first big step in state intervention. ‘Here began the participation of government in the administration of India’ (Dame Lucy Sutherland). It also established a political precedent and a procedural system for further encroachment, while its soon apparent failings made such encroachment both inevitable and imminent.
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To be fair, the 1773 Regulating Act was never intended as more than a temporary expedient. Renewal or amendment after five years was envisaged; the Company’s charter itself was anyway due for renewal in 1780. George III, an interested and active party, declared that it laid ‘the foundation for a constant inspection from Parliament into the affairs of the Company which must require a succession of regulations every year’. But recurrent parliamentary interference was not what Lord North had in mind. His idea was to supervise and reform the Company by less direct methods. Thus two provisions, one raising the stock qualification for voting in the Court of Proprietors to £1000 and the other changing the annual election of all the directors to an annual election of only a quarter of them, were designed not only to ensure a greater continuity in the direction and less ‘splitting’ among the shareholders but thereby to make the exercise of ministerial support and management that much easier.
Additionally the bill provided for Government access to all correspondence with India which dealt with revenue, political or military subjects. Revenue matters were studied by the Treasury and there in particular this provision resulted in a growing understanding of the complex issues raised by Indian administration. (John Robinson, author of the 1778 analysis already quoted, was a Treasury Secretary.) But as yet it does not seem to have resulted in much active participation by government in the day-to-day running of the Company. For this the Government relied on the Act’s most important provision: the creation of a governing Council in Calcutta, its five members nominated by Parliament and including three representing the Government’s interests who could – and, invariably and implacably, would – outvote the two Company members. The Council was headed by Warren Hastings, the incumbent Governor who now became the first Governor-General with an ill-defined supervisory authority over the Bombay and Madras Presidencies and Benkulen. Finally the Act set up a Supreme Court of Justice in Calcutta with, again, an ill-defined jurisdiction over the Company’s servants. It was supposedly designed to satisfy Sulivan’s repeated requests for some means of disciplining them; but, since the judges were nominated by the Crown, the Court proved more inclined to challenge the Company’s authority than to support it.
The final legislation consisted of three bills, one authorizing the loan, the second that was the Regulating Act itself, and a third, easily ignored in the excitement over state intervention and apparently of very marginal significance, which allowed the Company to claim back all customs duty paid on tea that was subsequently re-exported to the American colonies. Again this measure was presumably in response to Sulivan’s earlier pleas for some easing of the excessive duties charged on the Company’s tea trade. More than half the tea being drunk in England was now in fact being imported into Europe by the Company’s Continental competitors and then smuggled duty-free across the Channel and the North Sea. Simultaneously large stocks of duty-paid tea were accumulating unsold in the Company’s warehouses. Under the new dispensation these stocks were to be ‘dumped’ on the American market where, before the year was out, the colonists duly dumped them in Boston’s harbour. The incident was to have serious repercussions.
But of more relevance to the Company’s history may be the relationship, as yet only dimly perceived, between the financial difficulties which precipitated each dose of state intervention and the fiscal handicaps under which the Company conducted its tea trade. A detailed examination of this relationship badly needs to be undertaken. Although it was still understood that the state should not interfere in the Company’s purely commercial activities, it can be no coincidence that concessions in the duty on tea accompanied every draught of the state pathogen and would go a long way towards sugaring its final death-dealing dose.
Tea apart, the Regulating Act, according to Professor Roberts’s neat summary, had thus ‘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’. Such imprecision, the product of poor drafting as well as muddled thinking, told more in India than in London. No sooner had the three councillors from London taken their seats in Calcutta’s council chamber than ferocious disagreements arose on every single issue. Hastings and Barwell, the two Company men, found their past policies condemned and reversed, their agents removed, and their integrity impugned. The personal clash between Hastings and Philip Francis, ablest of the newcomers, was destined to last three decades and to occasion one duel, much brilliant polemic, the most sensational trial of the century, and a vast literature. They will be considered elsewhere. Here it is sufficient to note that as early as 1776 the Government accepted the need to remove Hastings and Barwell and duly deployed its influence in the Court of Directors to secure a vote for their recall.
But now the limitations of the new settlement as it affected London became apparent. Amid tumultuous scenes and after a twelve-hour debate attended by the leaders of the Government, the Opposition, and the Lords, the Court of Proprietors rejected the proposal. Hastings, who had already restored some order to Bengal’s finances and reformed the revenue administration, was held up as a symbol of integrity and of the Company’s independence, while the triumphant majority in the Court of Proprietors came to see themselves as a bastion of Company tradition against state interference. This was certainly an over-simplification. Consisting on the one hand of the Bengal Squad including the Johnstone clan plus part of the parliamentary Opposition and, on the other, of the reform-minded Sulivan-Hastings group, the victors represented an improbable coalition which required as much ‘management’ as the Ministerial majority in the Court of Directors. But success did generate a certain sense of purpose. Evidently the heavily drugged corpus of the Company, if sufficiently provoked, could yet administer a hefty kick. Henceforth this grouping represented the spirit of defiance.
(The only Bengal interest which it did not embrace was that of Clive. After weathering a final attack on his administration and his jagir from the Select Committee, a sick and embittered Clive had committed suicide in 1774; but not before renewing his vendetta with Sulivan and poisoning the minds of Francis and the new Councillors against Hastings.)
Frustrated by the Court of Proprietors, Lord North threatened to refer Hastings’s dismissal to Parliament, whereupon Lauchlin MacLean, Hastings’s agent in London, proffered his master’s resignation. This was possibly the result of a misunderstanding, possibly an ingenious ploy hatched by MacLean, one of several plausible and intriguing – in both senses – adventurers operating on the speculative margins of the Company. Either way, the news deflated the crisis and 1777 passed in expectation of Hastings’s early return. In April 1778 it emerged
that he had not resigned, had never intended to resign, and was now, thanks to the death of one of the Councillors, in a stronger position than before. News of another death, that of his assumed successor as Governor-General, further confirmed his renascence, while at home Sulivan, his patron, secured enough votes to get himself reinstalled, for at least the fourth time, in the Court of Directors.
All this was bad news for North’s Government. It was, though, as nothing compared to the American tidings of Burgoyne’s surrender at Saratoga and of the French entry into the war. Briefly the probable loss of Britain’s transatlantic empire eclipsed all else, paralysing the administration and shattering the confidence of its leader. When the Court of Proprietors again lashed out, this time to reject the proposals drawn up by Robinson to amend the Regulating Act, North merely limped off to seek Sulivan’s backing, thus signalling the near collapse of Ministerial control over the Directorate. Sulivan’s price was a renewed commitment to Hastings’s Governor-Generalship and a strengthening of the Governor-General’s authority over his Council and over the subsidiary presidencies. In the press of American business, the Regulating Act was simply renewed annually until, in 1781, it was superseded by another temporizing measure which addressed neither the crisis in Government-Company relations nor that in the Calcutta Council chamber. ‘A paltry performance’ was Sulivan’s verdict.
The year 1781 ended with the surrender at Yorktown; it was followed, three months later, by the resignation of the North Government. In a crisis atmosphere of recrimination and disillusionment, plus a growing demand for reform of the domestic administration, four coalition ministries succeeded one another in two years. This instability in government gave to a Parliament no longer stifled by ‘management’ the chance to make itself heard. It did so by turning, as if by way of consolation for the loss of the American colonies, increasingly towards India; and at last the train of events, set in motion back in the 1760s, moved rapidly towards a conclusion.
As in the run-up to the Regulating Act, two parliamentary committees took the lead. The first, a Select Committee staffed mainly by opponents of the North administration, was supposedly investigating complaints against the Supreme Court set up in Calcutta under the Regulating Act. But fired by the high-minded rhetoric of Edmund Burke and fuelled by the revelations and animosities of Philip Francis, it, like its predecessor, was soon engaged in an impassioned and wide-ranging attack on the Company’s misgovernment, on its servants’ transgressions, and in particular on the character and conduct of Warren Hastings. Meanwhile a Secret Committee had been necessitated by another Indian crisis – Hyder Ali was again rampaging through the Carnatic – and another looming financial crisis. Organized by North’s Government and staffed by his Indian specialists including Robinson and the highly ambitious Henry Dundas, the Secret Committee also extended its deliberations way beyond its ostensible remit (the causes of the Carnatic war) and became in effect a policy-making body.
Between them these two committees issued eighteen lengthy reports whose cumulative effect was to convince even the Court of Proprietors that some radical change was unavoidable. While the sensational and impassioned revelations of Burke’s Select Committee ‘made some sweeping reforms inevitable’, it was the more dogged and pragmatic deliberations of Dundas’s Secret Committee which ‘laid down the nature of those reforms’ (L. Sutherland). In this eighteenth-century transfer of power in India, the high-minded Burke, albeit by rhetoric rather than example, played the Gandhi role and the affable Dundas the Nehru.
First in the field, Dundas moved again for the recall of Hastings. Parliament approved the motion and the Court of Directors seconded it; but again the Court of Proprietors rejected it, twice. Without the proprietors’ approval the directors were powerless to act. Six months later Dundas responded by introducing his own bill for a root-and-branch reform. It included the right of the Crown to appoint and recall the Governor-General and since it also greatly strengthened the position of the Governor-General vis-à-vis his Council and the subsidiary Governors of Madras and Bombay, it in effect by-passed the authority of Leadenhall Street. But a change of government meant that Dundas was now in opposition and his bill, awarding such important powers to the Crown, never stood a chance in a House profoundly suspicious of royal patronage. Its proponent and many of its provisions were, however, incorporated in Pitt’s final solution.
Next, though, it was the turn of the Select Committee in the person of Charles James Fox, who had just formed an unpopular minority government in coalition with the discredited North. Fox’s India Bill, actually two bills, is now thought to have been inspired and partly drafted by Burke himself whose profound horror of the Company and all its servants it vividly reflected. Yet, compared to Dundas’s bill, it concentrated more on arrangements in London than in India, proposing, instead of a surgical by-pass of India House, a veritable heart transplant. If, as Burke was wont to declaim, the Company had really broken every treaty it had ever made and sold every title it had ever dispensed, then it had forfeited its sacred charter, not to mention its assets, and must be cast out. In its place the bill allowed for seven Commissioners, nominated by Parliament, to replace the Court of Directors at the helm of Indian affairs plus another nine Assistant Commissioners to manage the Company’s trade and fix its dividend. ‘It will be a vigorous and a hazardous measure’, Fox had predicted. He made it all the more so by nominating to those seven all-powerful Commissionerships seven all-loyal Foxites.
This was too much for the Company which alerted every other chartered body in the country to such an ‘unconstitutional and unprecedented’ seizure. It was also too much for the Opposition, who foresaw that an administration with the patronage of India in its gift might be able to hold the reins of government indefinitely; too much, too, for old Sir William James who died of a fit of apoplexy brought on by what he must have regarded as depredations more piratical than Angrey’s; and too much for George III whose detestation of both the Ministry and its bill led him to advise the peers of the realm that any Lord who voted for it was ‘not only not his friend but his enemy’. Thus, though the bill passed in the Commons, it was defeated in the Lords and the Government was promptly dismissed.
Enter the twenty-five-year-old William Pitt (the Younger). As the great-grandson of Thomas Pitt, interloper and Governor of Madras, and as the scion of a family which owed its prominence to an Indian fortune acquired before such things became reprehensible, Pitt was in a happily ambiguous position. More to the point, the alarm caused by Fox’s bill meant that almost any alternative now stood a fair chance of favourable consideration even by the likes of Sulivan in Leadenhall Street. Indeed, Pitt had already secured the support of the most knowledgeable and able of the India managers, especially Dundas and Robinson. He narrowly failed to win over Sulivan but could nevertheless claim that his India bill had the support in principle of the majority of the directors. A majority in the House of Commons as yet eluded him. His first India Bill was defeated in January 1784 and it was not until the following July, after Pitt had won the general election handsomely, that the India Act was finally passed.
Pitt’s India Act combined elements of both Dundas’s and Fox’s bills. Like the former it made the Governor-General in India a royal appointment while his authority over his Council and over the subsidiary Presidencies was somewhat enhanced. But like the latter it set up in London a body of Commissioners, six in number and known as the Board of Control, who would henceforth ‘superintend, direct and controul [sic]’ the government of the Company’s possessions. An objection was raised to the word ‘direct’ but it was not removed. The Board was to work through the Company, ‘directing’ the directors by an elaborate system of scrutiny and consultation which soon left Leadenhall Street with no greater powers of initiation and revision than any other branch of the civil service.
The members of the Board included a Secretary of State and the Chancellor of the Exchequer, both government appointments, but to avoid the obvious criticism
it was emphasized that all Indian patronage was to remain with the Company. The Company was also to continue to manage its purely commercial activities without government interference. If respected, these were important concessions and went a long way towards reconciling Leadenhall Street to an Act which, in the words of the late Professor Roberts, ‘converted the Company into a quasi-state department’ and rendered its final abolition in 1858 merely ‘a formal and explicit recognition of facts already existing’.
One other concession is also of relevance. After the failure of Pitt’s first bill but immediately before the passage of the second, a so-called Commutation Act had been passed. This imposed a tax on windows by way of making good the loss of government revenue resulting from a dramatic reduction in the duties charged on tea; they were slashed from a variable rate of between 79 per cent and 127 per cent to just 121/2 per cent. It is not possible that the Company was unaware of the effect this concession would have on the most lucrative branch of its trade. In return for surrendering administrative independence in India the Company was rewarded with the most important commercial opportunity in its history. What was lost in terms of Indian revenue was to be made up on the China trade.
