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I am familiar with the fact that many theaters display the message 'Management reserves the right of admission' or something similar.

Today, our pre-board mock tests (Class 10) ended, and me and my friends went straight from school to a particular theater to watch a movie. However, when we got there, we were denied admission on the basis that the management thought that we were bunking school (our school breaks as soon as the exam ends, around eleven am).

My question is, does the theater have any right to refuse admission on such arbitrary and unproven grounds?

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The theatre is a private place. You may enter it only with the permission of the owners. They are not obliged to grant you that permission. They have the right to refuse admission on almost any grounds they choose.

I say "almost" because many jurisdictions have laws about things like race or gender discrimination. I suspect in India it would be illegal to say "You can't come in because you are Hindu." The point is though, that there is a short list of reasons which they aren't allowed to use. Any other reason is legal.

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