Blend everything except paneer, onions and peppers in a blender to make grainy paste. Taste it, you should not need to add any water.
Cut paneer, onions and peppers in small cubes.
Pour the marinade paste over cubed paneer, onions and peppers. Use your hand to gently coat all pieces evenly without breaking paneer.
Refrigerate marinated paneer in an airtight container for at-least 6-12 hours. The longer you keep marinating, the better it tastes. I like to marinate it over night.
Once done marinating, either bake it, preheat oven on 400°F. Place marinated paneer, onions and peppers in a greased baking tray in a single layer. Bake it for 20-30 minutes turning them once half way through. Save leftover marinade for later use.
Or place them on skewers and grill them till charred. Save leftover marinade for later use. You can enjoy this paneer as is, without making puffs with some minty yogurt sauce!!