British interference in Awadh aimed at securing greater control of the country. Some officials of the British Government of India adopted a forward policy, aimed at absorbing Awadh altogether. Some thought (mistakenly) that a great deal of cotton could be grown in a British-controlled Awadh, and others eyed the revenue the province would provide to the indebted Government of India. In a letter written on 23 September 1855 Governor-General Dalhousie, a forward-policy advocate, showed disdain for East India Company officials in London who feared Parliament's disapproval should he annex Awadh, pointing out that it had acquiesced in other annexations. In the same letter he worried that Hindu-Muslim violence, such as occurred over the Hanumangarhi, could recur and "spread very wide." Dalhousie, knowing he had to retire from his post in favor of Lord Canning late in January 1856, pressured the Council in Calcutta to approve a draft treaty that would finalize the British take-over of Awadh. The resident, Outram, presented the treaty on 30 January to the shocked Awadh government, which later rejected it. Nine days later Dalhousie, having unilaterally annexed the country, wrote, "So our gracious Queen has 5,000,000 more subjects and £l,300,0 more revenue than she had yesterday." Nishapuri Awadh became British "Oudh."
The British take-over signaled a new order and heavy reverses for the old Shi‘i elite. On 7 February Vajid ‘Ali Shah ordered his subjects to obey the British, announcing that he would set out for London to press his claims' to the crown before Queen Victoria. He asked Sayyid Muhammad Nasirabadi to engage in divination to determine his chances of success. The last official act of the chief mujtahid was not one of learning or moral teaching, but one of soothsaying for a fallen order.
Shi‘is from ulama families reacted differently to the annexation. Sayyid Muhammad ‘Abbas Shushtari resigned abruptly from his judicial post, although the British offered to keep him on. On the other hand, Mawlavi Sayyid Icjaz Husayn Kinturi, head clerk of the chief minister's office, stayed on to help reorganize the bureaucracy under the British Judicial Commissioner.
In many cases, the British offered ulama families no choice of continuing in their jobs. They dismantled the Shi‘i judiciary system, though the new British rulers continued to employ some local muftis. In August 1856, after months of consultation, they abolished the Shi‘i seminary, on the grounds that it benefited only the Shi‘i community and could not serve as a vehicle of liberal instruction ("its exclusiveness and its worthlessness as a place of education"). Worried about permanently alienating the influential mujtahids, however, they offered the teaching staff and administrators reduced stipends for life, though they excluded some members of the Nasirabadi family with other sources of income.
The British stopped payment for one year, however, of these government stipends and those deriving from interest on loans, to investigate and reorganize them, and the abolition of many stipends and pensions hit some Shi‘i ulama hard. The Nasirabadi family, hurt both by the later policies of Vajid ‘Ali Shah and then of the British, desperately applied to the Oudh chief commissioner for the continuation of its government stipends:
The Moojtahid and the other members of his family were constantly setting forth their great pecuniary distress and complaining of the indignities to which they were subjected from the actions filed against them in the Civil Courts owing to their inability from want of means to pay their debts.
The chief commissioner, with the governor-general's approval, forwarded Rs. 5,000 to Sayyid Muhammad Nasirabadi to hold him and his family over until stipends could be regularized. He also approved British government continuation of stipends to the mujtahids at Rs. 1,977 per month, and to the Sayyids at Rs. 495 per month, noting, "These men are very influential, and have been deprived of their bread in a great measure owing to our acquisition of the country." The British also hurt many Shi‘i families by their settlement policies. They scheduled the Nasirabadis' villages to be resumed within one or two generations, inducing anxiety about how the office of chief mujtahid would continue to be funded.
Continued stipends could not salve the wounds inflicted by British annexation on the Shi‘i ulama. Once the masters of the judicial system, they now faced the threat that creditors would drag them into British courts. Sayyid Muhammad pleaded with a plaintiff to settle out of court through an informal agent, because "now, going to court means going to a Christian ruler, and a lawyer (wakil ) will be ordered to appear in a European court." The loss of prestige, wealth, and power by the Shi‘i ulama at the stroke of Dalhousie's pen could not help but cause great resentments, despite later British attempts at conciliation.