Clive concluded the Treaty of Allahabad (1765) with Shuja-ud-daulah on the following terms.
i. Awadh was restored to Shuja-ud-daulah in return for a sum of money.
ii. Shuja-ud-daulah ceded Kora and Allahabad on condition that the Company would protect him against invasions. Awadh thus became a buffer state (neutral zone), which would protect Bengal from the direct impact of an invasion from the north-west.
Shah Alam II issued a farman (royal order) in 1765, granting the Company the diwani (right to collect revenue) of Bengal, Bihar and Orissa on a permanent basis. In return, the Company gave him the districts of Kora and Allahabad, and an annual tribute. Shah Alam II began to live in Allahabad under the Company’s protection.
In Bengal, the Company was now the virtual ruler, with full control over revenue collection and military and criminal jurisdiction. The Nawab’s office was reduced to a position of responsibility
without any power.
The Nawab, who was responsible for the welfare of the people, had no control over the resources, while the Company enjoyed all the power without any responsibility. This was the system of dual government, which lasted till 1772.
Bengal suffered under this system. The Company’s officials oppressed the people and showed no mercy even when a severe famine struck Bengal in 1770.