Heat oil in a heavy bottomed pan over medium heat.
Add bay leaf and cumin seeds, allow to splutter.
Next add chopped onions and saute till translucent.
Now, add the ginger-garic paste and saute till raw smell completely disappears.
After that add the tomatoe puree, saute until everything begins to turn mushy.
Add turmeric powder, red chili powder, coriander powder, kadai masala powder and give a quick mix.
Saute until the whole masala paste is nicely roasted and oil begins to leave the sides of the pan.
Next, add the paneer cubes along with capsicum cubes and mix everything gently.
Now pour 1/4 cup water and give a quick stir, but gently.Cover the pan and allow the kadhi paneer to cook for 4-5 mins over medium heat.
Turn off the heat and sprinkle crushed kasoori methi.
Serve hot as a side dish with rice or lachha paratha !