It is about encryption though. Since it's possible for him to get access to anything said in those group chats, they asked him to provide all Telegram has on those users and chats. He didn't, he got arrested.
He wouldn't have been in as much trouble if those chats were encrypted and Telegram couldn't know anything about what's said in what chat by which user.
Because hw wouldn't be "betraying" his users by giving everything that was asked of him by the authorities.
The problem is that those guys comply with the requests from governments.