The correct option is B While walking towards the lab, Sonali found a five hundred rupee note on the floor.
An adverb clause is a group of words containing a subject and a verb,
and it functions as an adverb, by modifying an adjective, verb or an
adverb. Adverb clauses generally begin with a subordinate conjunction
(since, because, while, etc.)
Generally, while reducing an adverb
clause to a phrase, the subject is removed and the verb is changed to a
present participle (verb + ing). (If there is an auxiliary/helping verb
attached, it is removed.)
The underlined words form a clause,
with the adverb of time "while", the subject "Sonali", verb "was walking". Hence the sentence needs to be changed and option A is
incorrect.
Option B is correct because the subject is removed, hence
modifying the adverb clause into an adverb phrase (with the adverb of
time intact).
Option C is incorrect because it is still a clause, replacing the adverb 'while' by the adverb 'as'.
Option D is incorrect because the words still form a clause; it has been changed to a coordinate clause.