Heat the oil over medium low heat in a skillet. Fry bay leaf and red chilli until the chilli blackens. Fry kalonji seeds for a few seconds. Add green chilli and turmeric and stir a few times. Stir in butternut squash, salt, sugar and water.
Simmer covered, 10 minutes. Add mustard paste and stir gently to mix with sauce. Simmer, covered, until the vegetables are tender but not mushy, 5-13 minutes. Carefully stir in coconut. Remove from heat.
Scatter coriander on top and serve.