"You have been investigating for two years, but with no registered case. It is extraordinary," a bench of justices S Muralidhar and Vinod Goel said.
The observations by the court came during the hearing of a habeas corpus plea moved on behalf of Singal, through advocate Pramod Kumar Dubey, seeking his release on interim bail on the grounds that his arrest on August 8 and continued judicial custody were illegal.
During the hearing, which will continue on August 27, the bench asked Additional Solicitor General (ASG) Maninder Acharya whether under section 212 of the Companies Act, the director or employee of a company or someone connected to it can be arrested without first investigating the private entity.
The court said the SFIO was not even sure if the Centre will proceed against the company, yet it went ahead and arrested someone and put him in jail.
"Without the company being held guilty, can you arrest a person connected to the company under the Companies Act? If yes, how? If no, then justify the arrest," it said and added that Parliament had made it extremely difficult for SFIO, which comes under Ministry of Corporate Affairs, to arrest someone.
Defending the SFIO's actions, the ASG argued that the agency's probe was at an initial stage and further investigation might indicate that the directors had "looted or victimised" the company and its shareholders.
The ASG also said that a person is arrested during the investigation to prevent him from tampering with evidence and influencing the witnesses.
Singal was arrested on August 8 in relation to an SFIO investigation into the affairs of Bhushan Steel Ltd and Bhushan Steel and Power Ltd, pursuant to a May 2016 order of the Centre under the Companies Act.
He was the first person ever to be arrested by SFIO which was given this power only in August last year.
The petition, against Singal's arrest and continued custody, has also challenged certain provisions of the Companies Act on grant of bail to persons arrested under the Act, claiming that they were violative of fundamental rights as they imposed "unreasonable restrictions".
The plea has claimed that his arrest was illegal as no grounds for arrest were communicated to him orally or in writing by the probe agency at the time of arrest.
It also said that the power of arrest cannot be exercised retrospectively for the offences allegedly committed prior to coming into force of the provisions of the Act.