Heat oil in a pan. Add the dried red chilies and lentils. On a medium heat, toast until the lentils turn deep golden, Add the crushed garlic/ginger and cumin seeds. Fry them for a minute.
Add the bell peppers, onions (optional) and sprinkle salt. Saute until they turn slightly soft & lose the raw flavor. Turn off and cool completely.
If using tamarind, soak tamarind in 2 tablespoons hot water until soft. Squeeze and use only a little - ¼ teaspoon in the next step.
Transfer to a small grinder/blender jar along with lemon juice or tamarind. Blend to a smooth or coarse chutney to your preference. Taste test and adjust salt.
On a medium flame, heat oil in a pan, add the dried chilies and fry just until crisp. Remove to a plate.
To the same pan, add bell peppers and sprinkle salt. Roast on a medium heat until soft. Add the cumin and ginger or garlic. Fry for a minute. Remove to the same plate.
Add peanuts. Fry them on a medium heat until golden and aromatic. Remove to the plate to cool.
Add all the cooled ingredients to a small grinder and pour a few tablespoons water. Grind until smooth, adding more water as needed. Taste test and adjust salt if required.
Heat a small pan with oil , add mustard, urad dal and red chilli. When they begin to crackle add curry leaves and fry till they turn crisp. Pour this over the red capsicum chutney.
Serve pepper chutney with appetizers, snacks & breakfasts like idli, dosa or paratha.