Will physical settlement happen, if I have margin against pledged shares but no cash?

You need to maintain the applicable F&O margins either in cash or pledged collateral for physical settlement.

If you have no cash balance but have sufficient margin against pledged shares, your open F&O stock positions can be physically settled to your demat account. Your ledger cash balance will become negative to the extent of the physical delivery settlement value and charges. You will be charged interest on the negative ledger balance until you add funds to your account or your collateral/investments are sold in accordance with our RMS policy.