Add the water, spinach, chili, and all of the spices to a blender or food processor. Blend until somewhat smooth.
Heat the butter or oil in a medium skillet over medium-high heat. Add the scallions, along with the blended spinach mixture. Cook, stirring occasionally, for 5-6 minutes.
Add the cubed paneer to the skillet and cook for another 10 minutes on medium, stirring occasionally. Add water to the skillet if the sauce becomes too dry.