The early mechanism of the establishment of Company rule in Bengal followed the administrative system under the Mughals. The Mughal provincial administration had two main heads - nizamat and diwani.
Nizamat meant administration of law and order and criminal justice; while diwani was the revenue administration and civil justice. The provincial Subadar was in charge of nizamat (he was also called nazim) and the diwan was in charge of revenue administration.
After the treaty of Allahabad the English East India Company was made the Diwan of Bengal but Lord Clive choose not to take over the administration of Bengal directly; this responsibility was left to the Nawab’s Naib Diwan and Naib Nazim Muhammad Raza Khan. As naib nazim he was to represent the nawab and as naib diwan he was to represent the Company.
Thus the Nawab had to handle the entire responsibility for the civil and criminal justice administration. However, he had to function through Muhammad Raza Khan who was placed under the superintendence, direction and control of the British Company. As the Diwan, the Company directly collected its revenue, while through the right to nominate the Deputy Nazim, it controlled the nizamat or the Police or Judicial powers.
This arrangement is known as ‘Dual or Double Government’. Under this system British had power and resources without responsibility while the Nawab had the responsibility of the administration without power to discharge it. Thus, the Nawab had to take all responsibility for bad governance. The revenue remained the sole earning of the Company in lieu of a meager annual payment to the Mughal emporer.