India spinner Chahal, currently with Rajasthan Royals, said that in 2013 a Mumbai Indians player allegedly dangled him from a 15th floor hotel balcony.
Chahal said that he fainted after the harassment by the then Mumbai Indians teammate, who was apparently drunk.
Shastri, who was in charge of the men's team until last year's T20 World Cup, said the incident was "not acceptable".
"Someone's life at risk. People might think it is funny but for me it's not funny at all," Shastri told ESPNcricinfo. "It shows the person who is trying to do it is in a state ... which is not appropriate.
"If it happens today, life ban for that person involved ... send him to a rehab centre as quickly as possible. Let him not come near a cricket field again."
Chahal, 31, was with Mumbai for three seasons from 2011 before joining the Royal Challengers Bangalore in 2014.
In a video interaction with fellow Rajasthan Royals spinner Ravichandran Ashwin, Chahal gave details about the 2013 incident.
"We had a match in Bengaluru and there was a get-together after that," he said. "So there was a player who was very drunk - and I won't take his name - he just called me aside, and he took me outside and he hung me out from the balcony.
"I was holding on to him, with my arms around his neck. If I had lost my grip, we were on the 15th floor ... suddenly many people who were there came and handled the situation. I kind of fainted, and they gave me water.
"So that was one incident where I made a narrow escape. Had there been a small mistake there, I would have fallen down."
Earlier this year, Chahal spoke about an incident from 2011 when two of his Mumbai teammates tied him up, taped his mouth, forgot about him and left him in a room for an entire night after a party.