"He knew where his pen was."
Translation:Li sciis, kie estis lia skribilo.
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Because "sia" is only used for things that belong to the subject of the clause.
Here the subordinate clause is "..., kie estis lia skribilo". The main verb is "estis" and its subject is "lia skribilo".
The pen does not belong to "lia skribilo" (the subject) and so it cannot be "sia skribilo".
So then if it's a subordinate clause why do we need the past tense in it? This is basically reported speech even if the reporting verb sciis doesn't imply actual speech, so shouldn't the verb in the subordinate clause be in the present since he knew where it was at the time when he knew that and not at an earlier time?