Born on January 4, 1835, in Coulston, Surrey, Lyall received his education at Eton and Haileybury College. He joined the Indian civil service at Bulandshahr in the Doab in 1856 and served in many capacities until his retirement in 1887. After being honoured for fighting in the Mutiny in 1857-58, Lyall successively became commissioner of Nagpur, commissioner of West Berar, the governor-general's agent in Rajputana, and (from 1878 to 1881) foreign secretary to the Government of India. During this period he helped negotiate peace and a monarchy in Afghanistan, a solution that earned him more honours, the C.B. (1879) and K.C.B. (1881). His last position, as Lieutenant-governor of the North-west Provinces and Oudh, enabled him to introduce local self-government there. After returning to England, Lyall served on the India Council from 1888 to 1902, and then as a privy councillor under Edward VII. These services earned him a K.C.I.E (1887) and a G.C.I.E. (1896). Throughout his life Lyall enjoyed the life of a man of letters, historian, essayist, and poet. His literary achievements brought him advanced degrees, a D.C.L. from Oxford (1889) and an LL.D. from Cambridge (1891), a fellowship at King's College Cambridge (1893), and membership in the British Academy (1902), among other honours. He and Cora Cloete of Cape Town married in 1863 and had four children, both sons and daughters. He died of a heart attack on April 10, 1911, and is interred at Harbledown, near the Canterbury of Chaucer's General Prologue.

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