Heat 2 tbsp oil in a large saucepan over medium heat and add the Bay leaves, cinnamon stick, cloves, cardamom pods, black peppercorns, and coriander seeds. Stir until the spices begin to change color and become fragrant.
Add the minced onion along with ½ tsp salt. Cook for 1-2 minutes, or until onions are soft, then add ginger-garlic paste and julienned chili pepper. Mix well and cook for 1-2 minutes, or until chili strands become tender.
Add the diced tomatoes and cook until soft. If necessary, add ½ cup water to maintain a loose consistency; the sauce should not be thick. Then add the chili powder and cumin powder.
Remove the mixture from the heat and allow it to cool down for a few minutes before it is blended. When it's ready to blend, puree the sauce in a blender.
Strain the sauce into a clean saucepan, then add kasoori methi powder and 2 tbsp butter. Bring sauce to a simmer.
Add potatoes. Simmer for 5 to 10 minutes, checking the consistency of the potatoes intermittently.
When the potatoes are almost fork tender, add ½ cup frozen peas and ½ lb paneer. Cook for 2 to 3 minutes, or until peas have become tender.
To finish the aloo matar paneer, add 2 tsp honey and the remaining 1 tsp salt. Serve as a side dish for four, or as a main course for two.