Sergio admitted "a political thing" meant Kello was left out of Sunday's 1-1 William Hill Scottish Cup fifth-round draw with St Johnstone at Tynecastle and the Slovakian was again missing for last night's 4-0 home loss to Celtic in the Clydesdale Bank Premier League.
Kello, out of contract this summer, is understood to have turned down a January move to Rapid Vienna for a reported fee of 100,000 euros (£83,000) which is believed to have irked the Gorgie club's owner, Vladimir Romanov.
"It's a tough situation, it's not a good thing for us," said Sergio but Shiels, whose Kilmarnock side face Hearts in the SPL at Rugby Park on Saturday, told Press Association Sport that he would not have tolerated any such similar boardroom interference.
"I have no sympathy for him," said the Northern Irishman, who is set to sign former Hearts and Bristol City midfielder Lee Johnson on a two-and-a-half-year deal if he passes a medical.
"If you have principles in your life and your job is to select the team and that power is taken away from you then you have to leave.
"If my chairman was trying to pick my team I would walk away because he has taken my job away from me.
"I am not criticising Paulo Sergio, but in my opinion, if the chairman ever said to me that I have to pick him or him then he is compromising my position.
"To belittle someone like that is so wrong. It wouldn't happen in any other industry.
"I have two keepers fighting for the number one slot. If the chairman says to me that I have to put in Anssi Jaakkola and I feel Cammy Bell is better, how can I look Cammy Bell in the eye and try to motivate him three weeks later?
"You have to back up your players.
"My principles have to be the most important thing to me because if you do that now, you will do that in other areas of your life."
Shiels linked Sergio's dilemma with that of Fabio Capello, who resigned as England manager last night following showdown talks with Football Association chairman David Bernstein at Wembley over the FA's decision to go over his head and strip John Terry of the England captaincy.
"It is ironic that it coincides with the England manager not being able to pick his captain. Again, that is totally wrong.
"I have walked away from one job.
"I was asked to play a certain way while I was the manager of the Northern Ireland youth team and I walked away from the job after eight years.
"To be fair, in Paulo's defence, there is more of a cultural thing in certain European countries where a manager coaches the team and you have a manager upstairs who selects formations and tactics.
"But the guy Kello, because he doesn't go to another club in the window - apparently that's why he has been punished - I don't agree with that at all."
Shiels was at Tynecastle last night where he saw Hearts denied what looked like an early goal against Celtic when Stephen Elliott's close-range header was blocked by Hoops midfielder Joe Ledley.
The ball appeared to be over the line but referee Willie Collum played on and the visitors ran up the park immediately and opened the scoring through skipper Scott Brown, before going on to win 4-0.
The Killie boss claimed the situation was tailor-made for goal-line technology, the introduction of which he believes is inevitable.
He said: "I would advocate anything to help the game and that would help the game.
"What was significant is it was a two-goal shift because Celtic scored from the counter-attack.
"You have traditionalists who say it will slow the game down too much but if you look at the way games are slowed down in other departments, I think it is a must. It will come in. It's only matter of time."