At least 20 Congress workers were injured and some 1,000 protesters arrested and lodged in a makeshift jail following clashes with police on Tuesday in Chhattisgarh capital Raipur.
The Congress workers were demanding the resignation of chief minister Raman Singh in the wake of what they termed "corruption" in the allottment of the Bhatgaon-II Extension coal block in Surguja district to a single bidder, Nagpur-based SMS Infrastructure Limited.
The protesters had attempted to lay siege to the chief minister's official residence.
Police resorted to lathicharge when the protesters forced their way through barricades placed en route the chief minister's residence.
While the Congress workers were led by Amit Jogi, son of former Chhattishgarh chief minister Ajit Jogi, the baton-wielding policemen were led by district Senior Superintendent of Police Dipanshu Kabra.
After the lathicharge, some 20 Congress workers were seen tending to wounds. Dozens of policemen were also injured in the clashes.
"The policemen crossed all limits. The Congressmen were only proceeding to the chief minister's residence demanding his resignation," said Ravindra Choubey, leader of opposition in the state assembly, who alleged that the police action was at the behest of the state government.
A report tabled in the state assembly April said that the Comptroller and Auditor General (CAG) had estimated the loss to the state exchequer on account of this allotment at "a potential Rs. 1,052 crore".
Chhattisgarh has a fifth of all India's coal and iron ore reserves.
The Congress has been in opposition in the state since 2003.
The CAG report had mentioned that a potential loss of Rs. 1,052 crore would have to be borne by the state on account of the allocation of the Bhatgaon-II Extension coal block to the Nagpur-based firm by the Chhattisgarh Mineral Development Corporation (CMDC).
The Congress alleges that the firm that won the bid was owned by Sancheti brothers, who were in a business partnership with BJP national president Nitin Gadkari.
General Secretary of the All India Congress Committee and Chhattishgarh state in-charge BK Hariprasad said norms had been flouted in the allottment of the coal block, and the losses to the state exchequer amounted to Rs. 5,000 crore.
Hariprasad said that even in the mining of bauxite and iron ore in the state, economic benefits to party leaders was the prime concern.
He alleged that there was a mining scam worth Rs. 20,000 crore in the state, and added that the Congress had submitted a memorandum to former president Pratibha Patil in September 2011 demanding a CBI probe.
State Congress president Nandkumar Patel said the firm that won the bid had no experience in coal mining, and did not meet other criteria for the allottment of coal blocks.
In its defence, the BJP government in the state has said that coal blocks Bhatgaon-II and Bhatgaon-II Extension were allotted to CMDC by the central government for commercial exploitation in 2007.
The CMDC had decided to develop the blocks through joint venture, with ownership right and 51% equity.
In a statement, the government said: "The decision on the competitive offers was taken by the board of directors of the CMDC after satisfying itself that the relatively lower offer of minimum payment for Bhatgaon-II Extension block was reasonable, having regard to fact that comparative geological data of the two blocks clearly suggested that the cost of mining of coal from Bhatgaon-II Extension were to be substantially higher than Bhatgaon-II block."
The Congress has sought a CBI probe into the CMDC's decision.