Explanation
Why Correct: Shah Alam II granted the Diwani rights of Bengal, Bihar, and Orissa to the East India Company through the Treaty of Allahabad in 1765.
Distractor Analysis: Bahadur Shah II was the last Mughal emperor who was exiled after the 1857 revolt. Farrukhsiyar granted the firman to the English East India Company in 1717, allowing duty-free trade. Zehander Shah was a Mughal emperor from 1707-1712 who faced succession conflicts.
Takeaway: The Treaty of Allahabad (1765) also granted the Nizamat (military defense) to Nawab of Bengal, creating the dual system of administration where the Company collected revenue while the Nawab maintained law and order.