Telegram channels are public, unencrypted web shops for all kinds of illegal goods. I guess the French government alleges that Durov is not doing enough to stop these activities on his platform.
It doesn't necessarily have anything to do with encryption.
It indirectly has a lot to do with encryption, in that if Telegram was actually encrypted, they'd probably have no grounds on holding him in the first place.
(At least at the moment, in most countries) it's not illegal to not ship a backdoor in your end-to-end-encrypted software upon government request, but in most it is illegal to not share data you're holding in a form accessible to you when you receive a warrant for it.
Doesn't mean that the server operators could. Think Mega (the new version of MegaUpload): they have these hash/fragment parts in the URL which aren't sent to the server and so you can send links around but Mega can claim they can't read anything because nobody gave them the "join" link to the data they host
But that's not what Telegram does and so they might reasonably have to implement automatic scans if there are an oddly high number of crimes being coordinated on the platform. (Sarcasm coming up:) It's really strange this would happen after they said it's for privacy nerds and then never implemented encryption for any of the useful/standard features
If anyone can access the data, it's not encrypted in any meaningful sense.
If you have access to some data, the government can require you to share it with them. But if you can't access the data due to encryption, the government can't force you to create a backdoor to access it. At least not outside truly extraordinary situations.
Telegram channels are public, unencrypted web shops for all kinds of illegal goods. I guess the French government alleges that Durov is not doing enough to stop these activities on his platform.
It doesn't necessarily have anything to do with encryption.