CBI last week registered a preliminary enquiry against Bhave, as also against Sebi's former Whole Time Member K M Abraham and others, for alleged irregularities in grant of licence to MCX Stock Exchange years ago in 2008.
However, the move has come in for strong criticism, as the enquiry has been initiated on the basis of an income tax department probe, which itself was closed later.
Reacting to the action against Bhave and Abraham, Parekh said he was "very saddened to read that CBI was going after Bhave and Abraham".
"I have know Bhave for a long time and I can say that you can not find a more upright person. He is a person who walks straight as a straight line. He is person of high integrity," the top industry leader told PTI over telephone.
Parekh said he has worked with Bhave on various occasions, including at the time of Satyam crisis when he was appointed by the government to an interim board to oversee revival of the scandal-hit IT company.
Besides, Parekh also served as Chairperson of Sebi's Primary Markets Advisory Committee during Bhave's tenure, while he was also on a committee on bond markets.
"I have not known anyone as clean as Bhave. I have worked with him in different capacities. Being in financial world, I worked with Bhave for many years and I can say that I've never met anyone as upright. He is clean as a whistle and CBI is going after the wrong person," said Parekh, Chairman of financial services conglomerate HDFC Group.
Asked whether such developments would impact good people from bureaucracy and corporate sector taking up regulatory roles especially in complex areas like financial markets, he said: "Why would a bureaucrat or a say a bank chairman take a decision if such things happen.
"People can see who is straight and who is not. If such people are being harassed, it is a disgrace on our system. Why would someone take any decision if a fear is instilled that he or she could be subjected to such agony years later."
Parekh, however, dismissed suggestions that the latest CBI move could be part of some larger political conspiracy ahead of general elections.
"I don't see that possibility," he said, when asked whether the bureaucrats and regulators were being targeted as part of some conspiracy ahead of elections.
"I am saddened and pained to hear that a person of his calibre, his integrity and such an excellent service record is being subjected to such things.
"If such things happen, which public officer, which bureaucrat and which regulator would take any decision. When genuine persons are being subjected to such harassment, how can anyone blame bureaucrats for not taking decisions.
Asserting that CBI was "going after a wrong person", Parekh said he had "heard of some cases when he (Bhave) was pressurised to do things which were not right and to give favours to people, but he never heeded to any of them.
"He never did anything wrong and he did not even get an extension as Sebi Chairman."
"So many people including Jairam Ramesh have criticised the move and you can ask anyone who has had working relationship with him and he would say the same thing," he added.