Last week Judge Zahra began presiding over the high-profile case involving the pop star and his former manager Titus Day, who is accused of embezzling $900,000 from the Australian Idol winner.
The trial was listed for mention on Monday before Judge James Bennett who informed the jurors of Judge Zahra's death and adjourned the case until next week.
Sebastian, 40, was due to resume testifying in the case on Thursday but that was unable to do so after the court was told that Judge Zahra was ill.
He suffered a suspected stroke that day and was taken to Sydney's Royal Prince Alfred hospital.
A statement released by the Zahra family said he died peacefully on Sunday, surrounded by his family.
They described him as a "special soul who touched the lives of everyone he met".
"We have received many lovely messages and memories that demonstrate the type of person he was, he had a big heart and wanted to see everyone achieve more than what they ever thought possible," the statement said.
"In honour of our Dad and his life, we encourage everyone to have a hot chocolate and share a dad joke in his honour!
"Those who knew him would know he loved a good (bad) joke!"
Judge Zahra worked as a defence solicitor before being appointed to the NSW District Court in 2007.
He has presided over numerous high-profile cases, including the trial of Hey Dad! star Robert Hughes who was convicted of sex offences and collar bomb hoaxer Paul Douglas Peters.
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