A Company in crisis: Parliamentary scrutiny of East India Company's finances

New Delhi, Nov 9 In the years leading up to the renewal of its charter in 1813, the East India Company's financial conduct became a subject of intense and often contentious debate within the House of Commons. Members of Parliament scrutinised the Company's balance sheets, questioned its methods of raising money, and challenged the very legality of its dividend payments.

The debates reveal a deep-seated anxiety about the Company's solvency, its relationship with the state, and the complex entanglement of its commercial operations with its role as a territorial sovereign. The core of the controversy revolved around three interconnected issues: the payment of dividends in the absence of clear profits, the escalating burden of debt, and the opaque relationship between commercial enterprise and the costs of empire.

The Dividend Controversy: Profits, Legality and Borrowing

A central and recurring accusation against the Company's directors was that they were paying dividends to proprietors in direct violation of the acts of Parliament. Parliamentarian Mr Creevey, a prominent critic, repeatedly brought this issue to the floor, asserting that the foundational laws establishing the Company, such as the acts of William III and Queen Anne, expressly forbade the payment of dividends except from "net profits". He argued that the Company had no such profits and was, in fact, "fifteen millions worse than nothing".

According to Mr Creevey and his supporters, the Company had resorted to "old devices" and, when these failed, had borrowed £1.5 million from the government under the guise of funding its trade, but had used the money to pay a dividend of £630,000. Lord Folkestone reinforced this charge, stating that the Company's own documents showed a deficiency of over seven million pounds after accounting for its capital stock, making the payment of dividends out of "net proceeds" an impossibility.

Lord A. Hamilton expressed pointed surprise that the directors could find "no profits to pay the public," as stipulated by law, yet seemed to have "quite enough to pay themselves".

The Company's defenders mounted a robust counter-argument, branding these accusations as "unfair and unfounded both in the law and the fact". Their defence rested on a crucial distinction between the Company's dual roles as a commercial entity and a territorial sovereign. Mr Adam, counsel for the Company, insisted that under the Act of 1793, the directors' conduct was "perfectly correct in point of law". He articulated what he called the "grand fundamental principle": that the Government of India was conducted by a commercial company, and it was the "right and duty of that commercial company to have their dividends paid out of the profits of their commerce".

Supporters like Mr Grant argued that critics made the mistake of treating the Company like a private merchant, failing to account for its vast assets. He contended that the "whole territorial property of the company, together with the assets and other property," should be offset against its debts.

Furthermore, he claimed the Company's prospective resources were improving, not worsening. Others argued that territorial expenses naturally absorbed a portion of commercial profits, but the Company was still bound to pay its dividend, which in turn benefited the public service. This defence, however, did not satisfy critics, who saw the separation of accounts as a convenient fiction to mask overall insolvency and circumvent parliamentary statute.

Debt, Revenue, and the Cost of Empire

Beyond the dividend issue, Parliament grappled with the Company's ever-increasing debt. The "East India Company's Bonds Bill" sought to grant the Company authority to raise a further £2 million on its own credit. This proposal was met with immediate opposition. Critics highlighted the paradox that while the Company's revenue had soared from seven million to 15 million pounds, it no longer had a surplus and its bond debt continued to grow. They demanded a clear and intelligible statement of the Company's affairs before agreeing to such a measure, with Mr Creevey pledging to prove that the company was "six millions worse than nothing".

In response, Mr R. Dundas, President of the Board of Control, argued that the bill was not designed to increase the Company's overall debt but was merely a transfer of debt from India to England. This was presented as a prudent financial move to pay off creditors in India, to whom the Company was paying interest rates of eight to ten per cent, by borrowing in England at a rate of only five per cent. He further defended the Company's financial state by pointing to several positive developments:

- A recent surplus of £300,000 to £400,000, where a deficit had been estimated.

- A reduction in the interest on the Indian debt from 8-10 per cent down to 6 per cent, achieved under the management of Lord Minto, which would create an annual saving of £500,000.

- The fact that establishments in India had not been reduced due to ongoing military expeditions and disturbances, the expenses of which fell largely upon the Company.

However, some members, like Sir H. Montgomery, were unconvinced, attributing the Company's financial distress to its own "extravagance, in speculations of trade, and their wasteful mode of raising money". He warned that the directors would have to provide for 12 million pounds in bills within the year.

The Burden on the British Public

The financial debates reached a climax when the broader relationship between the Company and the British state was examined. Mr Creevey argued that ever since its transformation from a trading body to a territorial sovereign in 1765, the Company had become a "constant burden and grievance to the nation". He pointed to the agreement of 1793, which he portrayed as a complete failure for the public. The key stipulations of that act had been ignored:

- The Company was meant to pay £500,000 annually to the public, but had done so only once in 19 years. Instead, the public had been required to loan the Company £1.5 million.

- The external debt in India, which was supposed to be reduced from eight to two million, had instead swelled to 30 million.

- The bond debt had risen from two to seven million pounds.

- A guarantee fund of £12 million, intended to secure the Company's capital stock, had not seen a single farthing contributed to it.

Another longtime avid supporter of the company, Mr Charles Grant, defending the Company, claimed that the £500,000 annual payment had been more than covered by the "various disbursements they had made on behalf of government". This argument, however, only underscored the critics' point: the Company's finances were inextricably linked with, and often subsidised by, the state, despite its charter obligations to the contrary.

The financial conduct of the East India Company, as revealed in these parliamentary records, was marked by a fundamental conflict between its commercial mandate and its imperial responsibilities. While its defenders argued for the legality and prudence of its actions within a complex and unprecedented structure, its critics saw a mismanaged entity, failing in its obligations, and surviving only through creative accounting and the financial support of the British public. These debates ultimately shaped the environment in which the Company's charter was renewed, setting the stage for greater state control and the eventual erosion of its commercial monopoly.

Conclusion

This parliamentary scrutiny served as the definitive public examination of the East India Company’s structural contradictions. The debate, far exceeding a simple audit, was a confrontation between the realities of costly imperial governance and the stringent constraints of commercial law. The Company's inability to reconcile the soaring expenses of its territorial sovereignty with the statutory requirement to pay dividends solely from 'net profits' exposed the inherent legal fictions and financial instability at the heart of its hybrid nature.

While defenders correctly cited the vastness of the Company's assets and the expenses it undertook on behalf of the Crown, critics like Mr Creevey successfully demonstrated that the foundational promise of the 1793 Act—a lucrative partnership for the British public—had failed, replaced instead by persistent financial dependency. The necessity of parliamentary intervention to permit further borrowing proved the critics' point: the Company was solvent only by grace of the British state.

Ultimately, this intense scrutiny provided the political and legal rationale for the state to intervene more decisively. The parliamentary inquiries of 1812 and 1813 did not lead to the Company's immediate dissolution, but they served as a final judgment on its autonomy.

(The author is a researcher specialising in Indian History and contemporary geopolitical affairs)

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