The correct option is 2 only.
Explanation
The Subsidiary Alliance system was a diplomatic and military strategy used by the British East India Company to bring Indian Princely States under British paramountcy without direct annexation. It was a major instrument of imperial expansion during the late 18th and early 19th centuries.
- Statement 1 is Incorrect: The Subsidiary Alliance system was framed and extensively applied by Lord Wellesley (Governor-General, 1798-1805). Lord Dalhousie (1848-1856) is associated with the Doctrine of Lapse. Although the French Governor Dupleix had earlier employed similar methods, Wellesley institutionalized the system to consolidate British power.
- Statement 2 is Correct: Under the terms of the alliance, the Indian ruler was compelled to station a British armed contingent within their territory. The ruler bore the cost of maintaining these troops, either by paying a subsidy or by ceding territory to the British.
- Statement 3 is Incorrect: The Indian ruler lost their sovereignty regarding foreign affairs. They were prohibited from declaring war, entering into negotiations, or forming political ties with other rulers without the explicit permission of the British.
Key Takeaway: The Subsidiary Alliance system effectively disarmed Indian states and subordinated their foreign policy to the British, ensuring British military presence at the expense of the Indian rulers.