In the context of Indian history, the principle of ‘Dyarchy (diarchy)’ refers to

The correct answer is: division of the subjects delegated to the provinces into two categories.

Let's understand this concept step by step.

What is Dyarchy (Diarchy)?
The term Dyarchy comes from the Greek word meaning "double rule" or "two governments." In the context of Indian constitutional history, it was a specific administrative mechanism — not a general concept of two rulers or two houses. It was introduced by the Government of India Act, 1919 (also known as the Montagu-Chelmsford Reforms), and it applied specifically at the provincial level.

How did Dyarchy Work?
Under the Act of 1919, the subjects (areas of governance) that were transferred to the provinces were divided into two categories:

1. Reserved Subjects:
These were the more important and sensitive subjects — such as law and order, finance, land revenue, and irrigation. They were administered by the Governor acting with his Executive Council (who were responsible to him, not to the legislature). The elected representatives had no control over these.

2. Transferred Subjects:
These were comparatively less critical subjects — such as education, public health, local self-government, agriculture, and public works. They were administered by Ministers who were responsible to the provincial legislature (i.e., elected representatives had a say).

Why is this called "Double Rule"?
Because within the same provincial government, there were two parallel authorities running two different sets of departments simultaneously:

— The Governor + Executive Council → controlled Reserved subjects (autocratic, unaccountable to legislature)
— The Governor + Ministers → controlled Transferred subjects (democratic, accountable to legislature)

This duality of governance within a single province gave it the name Dyarchy.

Why the Other Options are Incorrect:

Option A – "Division of the central legislature into two houses" refers to Bicameralism, not Dyarchy.
Option B – "Introduction of double government i.e., Central and State governments" describes the concept of Federalism, not Dyarchy.
Option C – "Having two sets of rulers; one in London and another in Delhi" is a loose description of the Secretary of State vs. Viceroy relationship — but that is not what Dyarchy technically means.

Key Takeaway:
Dyarchy, as introduced by the Government of India Act of 1919, specifically meant the division of provincial subjects into two categories — Reserved (under bureaucratic control) and Transferred (under elected ministerial control) — creating a dual system of governance within the provinces themselves. This system was later abolished by the Government of India Act, 1935, which introduced Provincial Autonomy.