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.
This system was introduced in South and South-Western parts of India.
The southern parts of India lacked large estates owned by any intermediaries like Zamindars in the north. Hence the Ryotwari system was designed for this part of India.
Madras officials Read and Munro recommended that settlement of revenue be made directly with the cultivators.
Hence the cultivator was to be recognised as the owner of his plot and the cultivator was made responsible to pay the revenue on time. Land was sold if the peasants/cultivators failed to pay the revenue on time.
It should be noted that, just because cultivators were made owners, it did not lead to true Peasant Ownership of the land. This system instead of creating a large number of Zamindars, just replaced them with one large zamindar i.e. the Company itself.
In most areas, the land revenue fixed was exorbitant. The company also retained the right to enhance land revenue at will.
The Ryots had to pay revenue even when his produce was partially or wholly destroyed by droughts or floods.