Locked 1-1 after the extra time, East Bengal thwarted Odafa Okolie's attempt with a brilliant work by Gurpreet Singh before winning the penalty shoot-out 4-2 to set up the summit clash against United SC.
East Bengal will take on United SC on Wednesday in pursuit of their record 25 Shield titles.
The Trevor Morgan-coached side, who lead the table in the I-League as well as local league (CFL Premier Division) and are having a positive run in the AFC Cup, also took their unbeaten streak to 14 matches.
Mohun Bagan went up with a C S Sabeeth (46th) goal after a goalless first-half but in a stunning turnaround, East Bengal's Aussie recruit Andrew Barisic took the match into extra time with a brilliant 88th minute strike.
More From This Section
The extra time failed to yield results as the match went into the ensuing tie-breaker.
Having snatched the vital equaliser through Barisic, East Bengal were full of confidence to win 4-2 in the shootout as Mohun Bagan wilted under pressure.
Barisic continued his fine run converting his attempt, while misery compounded for Mohun Bagan as Nirmal Chhetri missed the net as East Bengal took a 2-0 lead in the shootout.
In the next set of shots, Mohun Bagan opened the account through Jewel Raja but East Bengal were on a roll with captain Sanju Pradhan making it 3-1.