After the battle of Plassey, the British secured the Diwani rights (rights to collect revenue). When Robert Clive obtained the Diwani of Bengal, there used to be annual settlements of the Land revenue. Izaredari system was introduced in 1773 by Warren Hastings in Bengal whereby he assumed that all land belongs to State. This was the first land tenure system implemented in India by British. Under this system, right of collecting revenue of a particular area was auctioned to the highest bidder. The Peasants, shopkeepers and merchants had to pay their taxes to the Izaredar who eventually was also the highest bidder to the company. Hastings first made the assessment from annual to 5 years and then back to annual.
Implications of Izaredar System
So far, the Zamindars had the customary hereditary rights of revenue collection and formed two way links to the Government and the peasants. But the auctioning of Land made many of those old settled Zamindars lose their job and thus the two way links were broken. The Izaredar was essentially a contractor who squeezed the poor peasants and then paid to the company saving his profit. They had no interest in the welfare of the peasants.
From Company’s point of view also, the Izaredari system was no good because there was a frequent change in the assessment period and no fix revenue generation. The Ijaredar system ended when Lord Cornwallis introduced the Permanent Settlement in Bengal, Bihar, Odisha and some parts of Carnatic (parts of northern Karnataka).