It is a religious sect with deep roots in Hinduism, a sect that celebrates divine love and surrender to the divine will. It is the sect that enthralled George Harrison when he was still a Beatle, and counted him among its most loyal devotees until the day he died. At his cremation in December, two of his fellow believers sat either side of the corpse, chanting.

But the International Society for Krishna Consciousness - better known as the Hare Krishna Movement - also has a dark and violent past that has come back to haunt it. Financial ruin is now on the cards for the Hare Krishnas. In New York yesterday, the organisation's communications director, Anuttama Dasa, announced that the movement was headed for bankruptcy and was seeking protection from its creditors. Later this month the International Society for Krishna Consciousness, or Iskcon as it calls itself, will file for what is known as Chapter 11 bankruptcy protection.

In June 2000, the organisation was hit with a $400m (£283) lawsuit alleging sexual and emotional abuse on a huge scale. Leaders of the sect say that the amount of compensation sought is far greater than the value of all the Hare Krishna temples in the United States put together.

Even if they were to fight and win, says Mr Dasa, the legal costs could bankrupt them anyway. Mr Dasa said he hoped that the Hare Krishna communities would be able to establish a substantial fund "to help any young persons who may have been abused".

The Hare Krishna folk are among the most readily ridiculed of oriental sects: processing in a long, ragged, wobbly crocodile along major shopping arteries such as Oxford Street, eyes half closed in ecstasy, brows encrusted with holy ash, tiny cymbals chiming, saffron dhoties swaying from side to side. But, behind the facade of blissful piety and vegetarianism, terrible deeds have been taking place, year after year.

The Hare Krishna Movement is the cult of the Hindu god Krishna, who is depicted as a young boy stealing butter in his mother's kitchen, as a youth beguiling his herd of cows with the music of his flute. Yet it was the children of the Krishna devotees who suffered, as the organisation itself has frankly admitted. Sexual abuse, physical and mental torture, systematic terrorisation of children as young as three - these were routine practices in many of the sect's boarding schools.

But even in the early 1970s, Hare Krishna was in conflict. On the outside all was bliss and devotion and harmony, but while the converts swayed and jingled and proselytised, back at the gurukula, the sect's boarding schools set up inside its ashrams, vile abuse was being practised on the same converts' children. According to a professor of sociology at Middlebury College in Vermont, E Burke Rochford Jr, who has made an extensive study of the problem, abuse at the sect's schools, including sexual abuse and violence, was widespread throughout the lifetime of such schools.

Estimates, he says, range from "20 per cent of all students ... suffering some form of abuse to as many as 75 per cent of the boys enrolled at the Vrindavan India gurukula having been sexually molested during the late 1970s and early 1980s." According the suit filed in Dallas, Texas, in June 2000 by 44 former students at the schools, children were beaten, raped and forced to stand for hours in darkened cupboards. Some, the suit alleged, were scrubbed with wire wool until they bled and deprived of medical care when sick with malaria, hepatitis or broken bones. One plaintiff, Greg Luczyk, recalled being beaten five times every day with wooden boards while attending one of the schools in India.

The Dallas school, the first to be set up, in 1971, was closed down by the authorities in 1976, and right across the sect's empire - it claims 300 temples in 71 countries, and 10,000 temple-based members worldwide - all the ashram-based schools were closed down by 1986, bringing to a close one of the ugliest chapters of religious hypocrisy of recent times.

The sect has not attempted to deny that things went badly wrong at its schools. Anuttama Dasa, the communications director, commented when the suit was originally filed: "If the events alleged in this suit did occur, we regret that they did." A director of the organisation, Dhira Govinda, said: "There is no doubt that many children did suffer while under the care of the organisation."

But why did it happen? Why, in a community dedicated to spiritual elevation, should children be tortured and raped? The key reason, according to Professor Rochford, was that devotees of the sect were supposed to put spiritual practice first. "Marriage and family life came to symbolise spiritual failure," he said, "and children a sexual product of that failure." The children who were the victims of this pseudo-monastic stigmatisation have now some hope of getting at least a modicum of financial compensation, which will of course do nothing to restore their blasted childhoods.