[8] A report constituted by the Lok Ayukta uncovered major violations and systemic corruption in iron-ore mining in Bellary.

[9][10] Hegde resigned from the Lokayukta position on 23 June 2010 after an officer (Deputy Conservator of Forests R Gokul) was suspended by order of minister J. Krishna Palemar and he felt powerless to help.

[15] After the resignation, he stated: Amid media speculation[16] that the ports minister Palemar had recommended Gokul's suspension on behalf of some politicians with business interests, Palemar defended his recommendation to suspend Gokul since he failed to attend a meeting, for it raised suspicions that he may be involved in the scam himself.

[16] In fact, in a press meeting, Hegde indicated that: The matter, which is being called the Belekeri port scam, relates to 3.5 million tons of illegal iron ore, belonging to the powerful mining lobby headed by G. Janardhana Reddy, that was ready to be exported from Belekeri port.

[18] After persistent protests and public pressure[19] Karnataka Chief Minister Yeddyurappa admitted to an illegal iron-ore export racket at Belekeri Port involving 35 lakh metric tonnes of iron ore.[20] Justice Hegde withdrew his resignation and agreed to continue in the post of Lok Ayukta after persuasion from National leadership of the BJP.

The party risked a major embarrassment in the BJP ruled Karnataka State government by allowing an upright person in public service to leave office,[21] though All India Congress Committee general secretary B K Hariprasad said that "Hegde's actions prove that he is a BJP man".