Heat oil in a pan.
Add chopped onions, red capsicum, cashew nuts, garlic and ginger. (If you do not have red capsicum, you can use green or yellow capsicum).
Mix well and add chopped tomatoes and mix well. Saute the vegetables on medium heat.
Saute till all the vegetables and cooked and the water in it is dried out. Keep aside and cool and then grind the roasted vegetables into a smooth paste in a mixer grinder.
Heat oil in a pan. Add bay leaf and cinnamon stick and cumin seeds.
When cumin seeds crackle, add the ground roasted vegetables paste. Mix well.
Saute the gravy on high heat. Stirring continuously to avoid sticking to the bottom of the pan.
After 7 minutes the moisture from the gravy will start drying.
after 10-12 minutes the gravy is becoming dry and starts releasing oil.
After couple more minutes the moisture from the gravy is evaporated and the oil is released. The colour of the gravy is also changed to dark.
Add spices - turmeric powder, coriander cumin powder, kitchen king masala, tandoori masala, paprika. (I was making this curry for kids and hence I have preferred using paprika, you can use kashmiri red chili instead. Paprika gives nice red colour and is not hot).
Mix well and saute the spices for couple of minutes. The spices and cashew nuts have released oil and the gravy is roasted well.
Add water and salt and mix well.
Add sugar to balance the sour taste of tomatoes.
Add crushed kasuri methi.
Mix well and simmer the gravy for 7-8 minutes on low heat. Cover and simmer.
The oil is floating on the top. At this stage the gravy can be cooled and store in a ziplock bags or airtight containers in the freezer.
Add the chopped paneer to the gravy and mix well. The paneer curry in capsicum is ready.
Serve the paneer curry in capsicum is with parathas or naan.