Akhandananda managed the finances with some help from others. Parents were separated from their children when they were sent to set up other ashrams around the country.
Ms Dwyer said evidence from 11 former residents will show a pattern of "sexual grooming by Akhandananda, which began when the children reached or were approaching puberty".
The grooming was followed by sexual abuse, including oral sex and sexual intercourse, by the time they reached the age of 14 or 15.
"It is anticipated that the former child residents will give evidence that they were told by Akhandananda that he needed to break down their physical barriers and that engaging in sexual activity with him was for their own spiritual growth," she said on Tuesday.
The commission would hear that the abuse often occurred in the hut that Akhandananda shared with Shishy.
Akhandananda was charged, convicted and jailed in the late 1980s for indecently assaulting four girls between the ages of 14 and 16.
Shishy gave evidence at his court case.
He spent 14 months in prison but the convictions were overturned on appeal by the High Court in 1991. He was released from jail and died six years later in 1997.
The Royal Commission into Institutional Response to Child Sexual Abuse hearing continues in Sydney.