The order was issued by a division bench comprising Chief Justice Manjula Chellur and Justice P V Asha on petitions by some private financiers complaining of police harassment during state-wide raids conducted against them.
The bench said police are at liberty to take action against illegal acts.
The financial institutions claimed that in view of the 'status quo' ordered by the supreme court in respect of Moneylenders Act, police cannot take any action against them.
The government had launched 'Operation Kubera' against private financiers who were charging exorbitant interest in the wake of the suicide by five members of a family in Thiruvananthapuarm this month following threats from loan sharks.