Parliament had to determine its relationship with this private trading company once it became a territorial and political power in India, arising from its military victories at Plassey (1757) and Buxar (1764), which gave it control of the revenue of the Indian states of Bengal, Bihar and Orissa.
The Company was badly administered, with corruption among its officials in Britain and India.
In 1772 it was engulfed by a financial crisis, and the British government was forced to intervene. Parliament had already established a number of committees charged with examining the state of the Company’s affairs and the activities of its servants in India.
The committees' reports severely criticised the East India Company and in 1773 its affairs were debated in Parliament. The Prime Minister, Lord North, maintained that Company territory would be "better administered by the Crown that is so ill-administered by Directors incapable of governing it".
Parliament steps in
The resulting new laws - the East India Company Loan Act and the East India Company Regulating Act - made it possible for the government to extend a loan to the Company in exchange for recognition of the British state's ultimate authority over the Indian territories.
It leased to the Company continued political control of its Indian territory in exchange for a payment of £40,000 every two years.
It also established the post of governor-general who, with a council of four members, was to have overall authority over the Company's territories.
More government control
More government control came with the India Act of 1784, under Prime Minister William Pitt. This created a committee of six government appointees, known as the Board of Control, who were to monitor and direct the Company's policies.
The government was also to have the final decision on the Company's nominations for its officials in India. This and a further new law passed in 1786 greatly increased the authority of the governor-general over other Company officials.