The doctrine of subsidiary alliance was introduced by Lord Wellesley, British Governor-General in India from 1798 to 1805.
In Subsidiary Alliance, the Indian States that were under British protection had to suspend their armies and instead maintain British troops. They also surrendered their control on their foreign affair and let go of their right to make alliances with other foreign states for any purpose, economic or political. In return, they were given protection by the British from their rivals. But, they had to pay for the subsidiary forces that the Company was supposed to maintain for the purpose of this protection.
The Nizam of Hyderabad was the first to enter into such an alliance.
Tipu Sultan of Mysore refused to do so, but after the British victory in the Fourth Anglo-Mysore War, Mysore was forced to become a subsidiary state.
The Nawab of Awadh was the next to accept the Subsidiary Alliance, in 1801.
After the Third Anglo-Maratha War, the Maratha ruler Baji Rao II also accepted a subsidiary alliance.
If the Indian rulers failed to make the payment, then part of their territory was taken away as penalty. For example, when Richard Wellesley was Governor General (1798-1805), the Nawab of Awadh was forced to give over half of his territory to the Company in 1801, as he failed to pay for the subsidiary forces. Hyderabad was also forced to cede territories on similar grounds.