Official sources said Sankaran was arrested in Mumbai on Monday and has been granted custody of Sankaran till Thursday.
IL&FS Financial Services had borrowings of more than Rs 17,000 Crore through debt instruments and bank loans.
Provident funds, pension funds, gratuity funds, mutual funds, public and private sector banks, are among those who have invested in these debt instruments.
The alleged financial irregularities at the IL&FS came to light last year after some group entities defaulted on debt repayments.
The government, which superseded the company’s board, is working on a resolution plan.