The correct option is C The Palayakkarars had to demolish all forts and disband their armies.
The Carnatic Treaty of 1081 entailed that the Nawab was to cede the districts of North Arcot, South Arcot, Tiruchirappalli, Madurai and Tirunelveli to the Company, and transfer all the administrative powers to it. It resulted in the Company having full command over the region. The British assumed direct control over Tamilagam and the Palayakkarar system came to an end with the levelling of all forts and disbandment of their armies.