Stir together Kashmiri red chili powder, ground ginger, ground fennel, and coriander powder in a bowl.
Add ¼ cup of water to the bowl and mix to make a paste. Set aside.
Heat mustard oil in a pan over high heat. Once the mustard oil is hot, reduce the heat to medium.
Add the paneer pieces to the pan and fry them from all sides until nicely browned. Keep flipping them while frying.
Remove the paneer pieces from the pan and add them to a bowl filled with 2 cups of water. Set aside.
Add cumin seeds, asafoetida, bay leaves, cloves, green cardamoms, and cinnamon stick to the oil in the same pan and let them crackle for 4-5 seconds.
Reduce the heat to low. Add the spice paste to the pan and mix well.
Cook for 2 minutes on low heat until the oil starts to separate from the sides of the pan. Now add the water in which we soaked the paneer and salt and bring the curry to a boil.
Add the fried paneer and cook for 10 minutes. Check for salt and add more if needed. Serve hot with rice.