Subsidiary Alliance System by Lord Wellesley
It was Wellesley who effectively reverted the policy of "non intervention" followed by his predecessors. He made the Nawab and Nizams subsidiary allies by signing almost 100 such treaties. Initially Wellesley compelled the friendly rulers to accept this alliance.
The First victim of the policy of subsidiary alliance of Wellesley was the Nizam of Hyderabad.
Wellesley neutralized the Nizam by getting him to sign the Subsidiary alliance to replace his French detachments. He also forbade Nizam to correspond with the Marathas without British consent. As the Nawab was a French protégé, he had appointed many Frenchmen at his court, but after this treaty, he was forced to dismiss the French employees and maintained six expensive British Battalions.
Marathas in Deccan had not entered into any kind of treaty, but still they were neutralized by Wellesley by a promise of share in the spoils of Tipu. After that only Wellesley demanded submission of Tipu and followed an invasion.
In summary, the system of Subsidiary Alliance could be any of the following:
The company lent its army in lieu of the Cash
Company kept the armies near the border of the Protectorate and collected cash.
Company kept the army inside the border for protection and collected cash.
Company kept its army inside the border of army and got some territories.
The last among the above given 4 types was dangerous. It was Nawab of Oudh that entered into this kind of arrangement in 1801 (Treaty of Lucknow) and ceded half of Awadh to the British East India Company and also agreed to disband his troops in favor of a hugely expensive, British-run army.
After this , the British were able to use Oudh's vast treasuries, repeatedly digging into them for loans at reduced rates. They also got revenues from running Oudh's armed forces. Last, but not least, the subsidiary alliance made Oudh a "buffer state", which gave strategic advantage to the British.