Convert the statement into indirect speech.

Megha said to Suraj, "The pencil is mine".

The given statement Megha said to Suraj, "The pencil is mine", is in the direct speech format as the exact words of Megha are quoted. We need to convert it into the indirect speech format. While converting possessive adjectives in the first person, indirect speech format will take the third person of the possessive adjective. Here, the possessive adjective used is "mine", which will get converted into "hers". Option A is wrong as it uses mine. Option C is incorrect since "said to" has not been converted into "told". Similarly, option D is incorrect as the quotation marks have been used. Hence, option C is correct.