Soak the cashews in about 1/2 a cup of water for about half an hour.
Heat the oil in the pan, add the finely chopped onion and sauté for a minute. Add the bay leaf, ginger and garlic and cook further, stirring frequently till the raw smell disappears. Now add the tomatoes and sauté for about 5 minutes over medium heat.
Put the whole spices in a muslin or net pouch and add it to the pot. This will make it easier to fish out later. Also add the powdered spices and about half a cup of water. Salt to taste and bring the mixture to a boil. Turn down the heat and simmer, covered, till the tomatoes are cooked soft. Turn off the heat and let it cool.
Drain the cashewnuts and discard the water. Put this and the cooled mixture in a blender and blend till it is smooth like a sauce. Return this to the pot with another half cup of water (adjust according to required thickness). Mix and bring to a boil. Turn down the heat to medium and add the paneer cubes. Stir and let it simmer for about 10 to 15 minutes. Adjust for salt. If it tastes too sour, add a little sugar to balance this out. It should not turn the gravy sweet.
Take the pot off the heat when ready. Once it has cooled slightly, transfer to a serving dish. Whisk together the yogurt and cornstarch till smooth. Use this to garnish the curry. In a small pan, lightly toast the Kasuri methi. Let it cool. Rub it in your palm and add to the curry.
Stir well before serving. Serve warm with chappathis, naan or kulchas.