Shuja was restored to Awadh, with a subsidiary force and guarantee of defence, the emperor Shah Alam solaced with Allahabad and a tribute and the frontier drawn at the boundary of Bihar. In Bengal itself he took a decisive step. In return for restoring Shah Alam to Allahabad he received the imperial grant of the diwani or revenue authority in Bengal and Bihar to the Company. This had hitherto been enjoyed by the nawab, so that now there was a double government, the nawab retaining judicial and police functions, the Company exercising the revenue power. The Company was acclimatized, as it were, into the Indian scene by becoming the Mughal revenue agent for Bengal and Bihar. There was as yet no thought of direct administration, and the revenue was collected by a Company-appointed deputy-nawab, one Muhammad Reza Khan.
But this arrangement made the Company the virtual ruler of Bengal since it already possessed decisive military power. All that was left to the nawab was the control of the judicial administration. But he was later persuaded to hand this over to the Company's deputy-nawab, so that its control was virtually complete.
Inspite of all this the East India Company was again in the verge of bankruptcy which stirred them to a fresh effort at reform. On the one hand Warren Hastings was appointed with a mandate for reform, on the other an appeal was made to the State for a loan. The result was the beginnings of state control of the Company and the thirteen-year governorship of Warren Hastings.
Hastings's first important work was that of an organizer. In the two and a half years before the Regulating Act came into force he put in order the whole Bengal administration. The Indian deputies who had collected the revenue on behalf of the Company were deposed and their places taken by a Board of Revenue in Calcutta and English collectors in the districts. This was the real beginning of British administration in India.
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