The institution was running without permission from the authorities since 1998 at Rasakua village under Jiangbali gram panchayat in Daringbadi police limits, Inspector in-charge of Daringbadi police station Josobant Hial said.
The 13 boarders have been handed over to Kandhamal district child-line, he said.
The illegality of the institution came to fore after an alleged suicide attempt of an inmate on Monday night. The minor girl had set herself afire after pouring kerosene over an alleged love affair with an employee of the institution, he said.
A joint inquiry conducted by Mohapatra, tehsildar Nimai Sutar, district child protection officer (DCPO) Rashmita Karan and police revealed that the institution was running illegally. The team also looked into the alleged suicide attempt of the girl.
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"During investigation, we came to learn that the girl had an affair with the gardener of the institution. After coming to learn about the matter, the institution management had ousted the gardener from service. Upset at the turn of events, the girl set herself on fire," the IIC said.
Meanwhile, the founder of the organisation was arrested and a probe was on, he said.