East Bengal hopes of winning the National Football League suffered a huge setback when they went down to Salgaocar by a solitary goal at the Nehru stadium in Goa on Sunday.
Salgaocar had the better share of exchanges and their efforts paid off in the second half when Mickey Fernandes' fierce shot from an indirect free-kick inside the box found the net.
The free-kick was awarded by referee N Mohan after East Bengal defender Suresh made a dangerous tackle on Fabio Passo.
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East Bengal went all out after the goal but were thwarted by the rival defenders. Mike Okoro had the best chance to equalise in the dying minutes but he drove the ball out after being fed by Bhutia.
The victory swelled Salgaocar's points tally to 11 from 12 matches, while East Bengal remain on second place with 28 points from 15 matches.
Mickey, who led the Salgaocar attack, was declared the man of the match.
Salgaocar, who are in danger of relegation, started in right earnest probing the rival goal with teasing passes in the middle followed by lofted passes from the flank.
They had a good chance in the 13th minute to forge ahead but Samson Singh failed to beat keeper Nassem Akhtar, who blocked his shot.
Samson again had a chance but this time he drove the ball over off a cross by Fabio.
East Bengal relied on counter moves, and had the best chance in the closing stages of the first half when defender Covan Lawerence split the Salgaocar defence with a through pass to Mike Okoro, but the last-named's shot was put out by onrushing 'keeper Sangram Mukherjee.
Earlier, an Alvito D'cunha curling drive hit the bar and once 'keeper Sangram tipped the ball over.
Referee N Mohan showed yellow cards to East Bengal's Saumik Dey, Shasthi Duley and N G Martial.
