After the battle of Buxar 1764, the East India Company acquired the Diwani of Rights (The right to collect revenue) over Bengal, Bihar and Orissa.
Initially, the company attempted to continue the old system of revenue collection . Warren Hastings auctioned the right to collect revenue to the highest bidder. However this system was not successful and hence the idea to look into different revenue models was started by the East India Company.
Permanent settlement was introduced in Bengal and Bihar in 1793 by Lord Cornwallis.
The zamindars and revenue collectors were converted into landlords.
These landlords were not only agents of the government in collecting land revenue from the Ryots (farmers) but also became the owners of the entire land.
Their right of ownership was made hereditary and transferable.
The landlords were to pay a sum permanently fixed by the British. These landlords were to give 10/11th of the rental they have got from the peasantry to the Company, keeping 1/11th for themselves. But the sums to be paid by the landlords to the State were fixed in perpetuity.
Cultivators were reduced to low status of mere tenants and were deprived of long standing rights to the soil.
The use of pasture lands, forest lands were restricted.
Protection of farmers from the enhancement of rent was sacrificed.
Also the landlords had to pay the revenue rigidly on the due date even if the crop had failed.
The major drawback of this system is the initial fixation of the revenue. The revenue fixed was very high, fixed arbitrarily and fixed without any consultation with the landlords. The Company attempted to secure the maximum possible amount from the landlords.
Permanent settlement was later extended to Orissa, Northern districts of Madras and districts of Varanasi.