Over the years, however, allegations of illegal mining in Bellary began cropping up, and therefore, in March, 2007, the then BJP led coalition government of Karnataka asked Justice Santosh Hegde to probe the allegations. The Lokayukta Report submitted in December, 2008 stated that at the continued extraction rate, the Bellary iron ore reserves would be depleted within the next 20 years. It directed attention to the meagre amount of royalties the state received (US $ 0.27-0.45 per ton), compared to the huge profits made by the private mining corporations (over US $ 17 per ton). The report also pointed out several irregularities in the processes followed for de-reservation of land, grant of lease, encroachment of forest cover, benami transactions, and grant of temporary transport permits not permitted by law. The report brought to light the improper orders passed by the Department of Mines and Geology, irregularities in the grant of stock yard license, as well as, transport of ores, besides the environmental damages caused by mining. The Lokayukta also reported the actions taken by the Chief Minister, B.S. Yeddyurappa and the State Minister of Mines, N. Dharam Singh.

Post the submission of the Lokayukta Report, the government made efforts to curb illegal mining, but their efforts were in vain. This was well proved by the Belekeri theft in 2010, when forest officials seized 800,000 metric tons of illegally transported iron ore, of which 600,000 metric tons disappeared after the seizure.

Two years after the release of the Lokayukta report, only 7 out of the 99 Bellary iron ore leases were surveyed; of which 6 were found to have flouted the boundaries of the mining leases. In 2009, the Supreme Court appointed a Central Empowered Committee (CEC) to look into illegal mining in Bellary, based on a Public Interest Litigation (PIL) filed by the Samaj Parivartana Samudaya (an NGO). The CEC reported that the state government had not paid any heed to the recommendations of the Lokayukta. The report also stated that illegal mining in Bellary had risen at a tremendous rate between 2009 and 2010. It suggested that the exports from Bellary be banned and the mining leases granted to companies which were found violating laws be revoked.

The Lokayukta submitted a second report in August, 2011 which led to the resignation of the Chief Minister, B.S. Yeddyurappa. The second report pointed out a loss of Rs.16,085 crIllegal Miningore (approximately US $2.67 billion) to the exchequer between 2006 and 2010. It also identified instances of bribes amounting to as much as Rs. 2.46 crores (around US $ 40,8705), along with the transport of ores beyond the permits. This led to the arrest of the mining ‘barons’ of Bellary, G. Janardhana Reddy and his brother-in-law, Srinivasa Reddy, by the CBI and the naming of over a 100 companies and 787 public officials for misconduct. The report revealed information regarding several groups of companies - Obullapuram Mining Company Private Limited, Anantapura Mining Company, and Associated Mining Company – owned by the Reddys and their associates. It was reported that the Reddys would identify mines that were not permitted to operate or were engaged in border disputes, and would then control them via ‘raising contracts’".