A bench of Chief Justice J S Khehar and Justices N V Ramana and D Y Chandrachud issued notice to the state government.
Senior advocate Kapil Sibal appearing for the petitioner said that the officer was granted bail, reinstated, promoted and rewarded despite being an accused in a murder case.
He said a couple of days back he was given three months extension.
The bench said notice has been issued and he should wait for the response.
Pandey was heading the state crime branch when Ishrat, a 19-year-old Mumbra-based girl, Javed Shaikh alias Pranesh Pillai, Amjadali Akbarali Rana and Zeeshan Johar were killed in an encounter with police on the outskirts of Ahmedabad on June 15, 2004. Gujarat police had alleged that they had terror links.
An SIT constituted by the high court to investigate the case had concluded that it was a fake encounter, following which the HC transferred the case to CBI.
On April 16 last year, Pandey was appointed as the in-charge DGP of Gujarat following unexpected transfer of incumbent P C Thakur to Delhi.
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