A bench comprising justices Aftab Alam and Ranjana Prakash Desai asked government to respond to the allegations after the conclusion of Shah's arguments in which he had contended that he was implicated because the Centre wanted to 'destabilise' the Narendra Modi government.
During arguments, senior advocate Ram Jethmalani, appearing for Shah, also raised questions with regard to the apex court's verdict directing the CBI to probe the case.
He submitted that the order should be considered 'non est' (not existing) as one of the judges (Justice Tarun Chatterjee, now retired) on the bench was himself under the scanner of the CBI in the Uttar Pradesh Provident Fund case at the time of passing of the order.
The counsel was also critical of the CBI probe and said it was not better than the investigation done by the Gujarat police under its officer Geeta Johri, who is now the police commissioner of Rajkot, as the agency's charge sheet is identical to that of the state police barring the fact that four persons have been added as accused.
The court was hearing a petition filed by the CBI challenging Gujarat high court's order granting bail to 46-year-old Shah.
Shah, a close aide of the Gujarat chief minister, was arrested by the CBI on July 25 last year and he had spent over three months in Sabarmati jail in Ahmedabad. Shah has been accused by the CBI of being the "kingpin" of
the conspiracy leading to the fake encounter killing of Sohrabuddin Sheikh in November 2005 and the killing of two key witnesses, Soharabuddin's wife Kausarbi and his close aide Tulsiram Prajapati.
Earlier, the agency had urged the apex court to transfer the trial in the case to a place outside Gujarat on the ground that witnesses were being intimidated and the trial could be held in a free and fair manner.
Sohrabuddin and his wife were allegedly abducted by the Gujarat's Anti-Terrorism Squad from Hyderabad and killed in a fake encounter near Gandhinagar in November 2005.
Tulsiram Prajapati, said to be an accomplice of Sohrabuddin, was also subsequently eliminated allegedly by the ATS to destroy evidence as he was an eye witness, according to the CBI.