One of the option available to the promoter of the company when he wants to raise money is pledging shares. He can keep his shares as a collateral with a finance company (usually a NBFC) and raise a loan against it.
The money raised can be used for personal reasons or for improving the business.
In fact any share holder can pledge their shares to raise loan, its just that when a promoter does, he is required to disclose it to the public.
Shares are kind of asset to the share holder.
Promoters are closed group of people, who form the majority in the board and run the company.
Normally, if you approach a bank and ask for loans, they will ask you some collateral.
In similar way, the promoter can raise funds (money) from Finance Corporations by submitting his shares (asset) as collateral.
This activity is called pledging, He is promising to give the shares to the Finance Corp if he is not able to repay his loan.
Example: If you take money control website and see the details of UNITECH or KFA you can see the promoter shares are 100% pledged. This means the promoters have already submitted their shares as pledging and taken loans against it.
Such companies with pledged shares are riskier to invest.