The object of the Act (Regulating) was good, but system that it established was imperfect’

By 1773 the East India Company was in dire financial straits. The Company was important to Britain because it was a monopoly trading company in India and in the east and many influential people were shareholders.

The Company paid £400,000 annually to the government to maintain the monopoly but had been unable to meet its commitments because of the loss of tea sales to America since 1768.

About 85% of all the tea in America was smuggled Dutch tea. The East India Company owed money to both the Bank of England and the government. Lord North decided to overhaul the management of the East India Company with the Regulating Act. This was the first step along the road to government control of India. The Act set up a system whereby it supervised (regulated) the work of the East India Company but did not take power for itself.

The East India Company had taken over large areas of India for trading purposes but also had an army to protect its interests. Company men were not trained to govern so North’s government began moves towards government control. India was of national importance and shareholders in the Company opposed the Act. The East India Company was a very powerful lobby group in parliament in spite of the financial problems of the Company.

The provisions of the Act were directed mainly to the malpractice and corruption of the company officials. The Act, however, failed to stop corruption and it was practiced rampantly by all from the Governor General at the top to the lowest district officials. Major charges brought against Hastings in his impeachment trial were those on corruption.

Corruption divided the Council into two mutually hostile factions- the Hastings group and Francis group. The issues of their fighting were corruption charges against each other. Consequently, Pitt’s India act, 1784 had to be enacted to fight corruption and to do that an incorruptible person, lord Cornwallis, was appointed with specific references to bring order in the corruption ridden polity established by the company.