He asked the Left opposition to see functioning of orphanages with a human face.
"Outside the floor of the assembly, you have said these orphanages are doing a great job, but now inside the assembly you allege that they are indulging in child trafficking," Chandy said.
"Please do not ever generalise the functioning of orphanages because there might be black sheep and for that the concerned agencies will do their job. We should not make comments without knowing facts," Chandy said in the state assembly.
Last month, around 455 children from Bihar, West Bengal and Jharkhand were stopped at Palakkad railway station by the Government Railway Police (GRP), who in turn informed Kerala Police.
The issue has since snowballed into a major controversy after it emerged that orphanages in that state allegedly trafficked these children without proper documents.
Chandy said there appears to be procedural lapses on the part of orphanages but one should not tarnish the good work they have done by making irresponsible statements.
"Please don't destroy great social work being done by these orphanages. But at the same time already a probe is going on and I assure the house that the law will take its course and if anyone has done any wrong, they will be taken to task," he said.
State Social Justice Minister M.K. Muneer said until last year, all the orphanages in the state functioned under laws framed in 1960.
"It was last year, we revised the act and now we are in the process of setting right all the documents of all children in the orphanages," he said.
"Please do not forget that the officials working in the state appointed child welfare committee and the board that controls all the orphanages were all appointed when you were in office. We assure that laws will now be strictly enforced," Muneer told the opposition.
CPI-M deputy leader in the assembly Kodiyeri Balakrishnan, who raised the issue, said: "We all agree to run an orphanage is a social service but none should be allowed to do undesirable activities in the name of running an orphanage."
According to government statistics, there are 1,387 destitute homes in the state, of which 87 are not licensed to operate. These homes have around 54,000 inmates.
Unhappy with the chief minister's statement, Leader of Opposition V.S. Achuthanandan asked if everything was very clean, then how come central minister Maneka Gandhi described the incident as a child trafficking.
"Sorry, I am not Maneka Gandhi's counsel and cannot answer for her," Chandy shot back. Unhappy with the reply, Achuthanandan led the entire opposition to stage a walk out.