Heat oil in a pan. Cut Paneer to small cubes and deep fry in oil until golden color in a medium flame, remove and drain on a kitchen paper. Keep it aside.
Now in the same oil add shahi jeera, cloves, cinnamon and bay leaf. Fry for few sec. and add chopped capsicum to it. Fry in a medium flame for 3 to 4 mins and add ginger garlic paste. Fry for few sec. and add the onion paste to it. Cook until the paste turns to pink color and starts leaving oil. Now add red chilli powder, dhaniya powder. sugar, haldi and salt. Mix well and add the tomato paste. Cook for few more mins until the paste looses raw smell and is cooked well.
Add the paneer pieces and coconut milk. Cook until the gravy thickens and switch off the flame. Now take the curry into a serving bowl. Garnish with fresh dhaniya leaves or mint leaves. Tastes good with pulao, fried rice, biryani, rotis or chapatis.