Special Judge H S Mahajan also granted pardon to Rai, who is currently lodged in Thane Central Jail.
The accused had moved an application in the court last month seeking to become an approver and had sought pardon. The CBI, too said they have no objection in making Rai an approver.
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"You will have to speak the truth about what you know, what happened, what you did and what others did. Is it OK?", Judge Mahajan asked Rai.
When Rai replied in the affirmative the judge said that he will have to explain the role that he and others played in the Sheena Bora murder case to which he agreed.
CBI sources said that since pardon has been granted to Rai, he is now a witness in the case and not an accused.
Expressing his desire to turn approver, Rai had earlier said that he wanted to "disclose all truths" as he had taken part in Sheena's murder.
Recording his statement before the court, Rai had said he was under "no pressure, threat or coercion" to reveal the facts in the case and was "repentant" about his act.
Rai had written a two-page letter to the court last month seeking pardon in the case while stating that he wants to reveal everything.
Rai was the first accused to be arrested in the case in August 2015, taking the lid off the murder, after he was picked up in connection with an arms case.
Last year, Rai had recorded his confessional statement before the magistrate under the provisions of section 164, which unlike the police statement, is admissible in the trial.
Key accused in the case, Indrani Mukerjea, her former husband Sanjeev Khanna and Rai had allegedly strangled Sheena (24), Indrani's daughter from an earlier relationship, inside a car in April 2012.
Sheena's body was found in a forest in Raigad. The crime, which came to light in August last year, is allegedly linked to certain financial dealings.
The trio was arrested in August last year while Indrani's husband and former media baron Peter Mukerjea was arrested in November. According to CBI, Peter was part of the murder conspiracy.
While Peter and Khanna are lodged in Arthur Road prison, Indrani (43) is in Byculla womens' jail in Mumbai.
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