The children were spirited away by gangs involved in child-trafficking and sold for as little as 10,000 rupees ($280 each) to Malaysian Social Services (MSS), it is alleged. MSS is an adoption agency based in Chennai, capital of the southern Indian state of Tamil Nadu.
The children so bought were then sent to wealthy countries such as Australia, Time magazine says.
One case at the centre of the scam is Zabeen, stolen from near her home in Chennai when she was only two. Her mother was mother was away at the time. The girl is now nine years old and living under a different name in Australia.
Her biological mother told Time: "If she wants to come back, we will embrace her. But if it is her desire to stay where she now is, we will only wish her well."
Chennai lawyer D.Geetha, who is representing parents who lost their children to MSS, estimated that at least 30 of the almost 400 Indian children brought into Australia in the past 10 to 15 years were trafficked.
The Queensland couple who adopted Zabeen are believed to be devastated at the revelation that she was stolen.
The girl was adopted through the Queensland Department of Families, Youth and Community Care.
The adoption occurred in 2000 despite the fact that serious questions were raised five years earlier about MSS. The concerns were enough for the West Australian Government to refuse to deal with the agency.
The Queensland minister in charge of the Department of Families Youth and Community Care at the time was Anna Bligh, now the Premier.
Ms Bligh has pledged to co-operate with any investigation into the situation and how stolen children might have ended up in Queensland.
"The Australian Government needs to appoint some kind of investigation about all the children who came through this agency, look at their background, look into their documents," Time quoted her as saying.
"These children are going to want to find their parents. The communication is being lost."
Three weeks ago, India's federal police body, the Central Bureau of Intelligence, sent an Interpol request to Australia to interview Queensland authorities and the couple who adopted the girl.
The CBI seems convinced that that Australian parents were tricked by MSS and hence they might not face any charge over their adoptions. But it insists that the biological parents should be allowed to see their children again in India.
The MSS renamed the children and fabricated histories for them, complete with photos of fake mothers supposedly offering them for adoption, it is said.
The police investigation began in 2005 after two men began arguing in a bar in Chennai and were heard making claims about child-stealing.
Police later raided the offices of MSS and discovered the files of 120 children who had been sent abroad for adoption, including 13 who had been sent to Australia.
Police matched photographs from those files with those of missing persons from surrounding areas.
More than 30 parents tried to match their children to the MSS files, but Indian police restricted their investigations internationally to five cases including that of Zabeen's. About 50 children were sent by MSS to The Netherlands, where the Dutch Government has established three inquiries and overhauled adoption procedures.
The Australian federal Attorney-General, Robert McClelland, said Friday night he had asked his department to contact Indian authorities and liaise with the Australian Federal Police to seek more details.
"I will ensure that any matters arising from the inquiry will be duly acted upon, and will engage with state and territory governments in their areas of responsibility," he told The Weekend Australian.
McClelland said it was important to note that Australia no longer dealt with MSS. But the adoptions by childless Australian couples continued to some states and territories - including Queensland, the ACT and Tasmania - even after other states became alarmed at the way MSS operated.
Time reveals that Western Australia stopped dealing with MSS after a family had their MSS adoption of a five-year-old girl cancelled in 1995 when an Indian court found the adoption agency had lied about the girl being abandoned.
The girl had a family but the orphanage claimed they believed the girl had been hallucinating when she insisted she had an uncle she could live with.
Another warning sign came in 1999 when one of MSS's staff was arrested over the theft of four babies from a hospital. MSS's licence was suspended but later restored as authorities could not prove that the agency knew the babies had been stolen.
The journalist who travelled to Chennai to track down the story, Rory Callinan, said, "The thing that got to me the most was that so much scrutiny was paid to the parents here in Australia who wanted to adopt but very few checks seemed to have been done into the source of the children".
The owners of MSS, P.V.Ravindranath and his wife, Vatsala, were arrested over the operations of the agency.
Ravindranath died in 2006 and Ms Ravindranath has insisted that MSS did not know the children were stolen. She is on bail.