Special Judge R Narayana Pisharadi acquitted 24 of the 36 accused including P Mohanan, CPI(M) district secretariat member and husband of party MLA K K Lathika.
While the seven who carried out the murder were hired killers, five others found guilty included three local functionaries of the CPI-M.
The quantum of punishment is expected to be pronounced tomorrow after hearing the defence and prosecution.
He left the party a few years ago over differences with the leadership and floated a parallel outfit called Revolutionary Marxist Party. He was 51 at the time of murder and suffered 51 hack injuries on the body.
The murder had cast a shadow on the CPI(M) in the state, firmly controlled by state secretary Pinarayi Vijayan with not only rival parties but senior leaders like V S Achuthanandan using it as a weapon to attack internal foes.
"We have said the murder of Chandrasekharan was unfortunate. But we made it clear that we had no role in it. What has now collapsed is a script based on complete lies to malign and haunt CPI(M). The party has been cleared completely," a visibly elated Vijayan, in Delhi to attend the party's politburo meeting, told reporters.
But Achuthanandan, who did not share the joy of his fellow comrades, said in a subdued tone that he would express his views after the sentence was pronounced.
Home Minister Ramesh Chennithala, however, said the outcome of the case clearly proved the involvement of CPI(M) in the murder.
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