I eliminated A,B and C as they were awkward.
I selected the option "D", but it is wrong.
The correct one is "E".
Can any one help on this?
Good job eliminating down to D & E. The issue here is about the meaning differences between laid & lay. The verb "laid" (past tense of lay) is a transitive verb that requires an object. With "laid" there is an action happening to something - "I laid the book on the table". The very "lay" (past tense of lie) is intransitive and therefore doesn't require that a specific action happen to an object. One of the definitions of "lay" is: "To consist or have as a basis; often used with in: The strength of his performance lay in his training."
This meaning of this sentence requires the verb "lay" and matches nicely with the definition "to consist or have as a basis". Darwin's originality lay in (was based on) his proposal...