This sentence is from an direct to indirect narration conversion exercise. As you can see the exercise has marked C as correct answer but I suspect it to be wrong as I never came across any sentence with structure had better + past form of verb, I googled and found sentences using only had better+ verb form 1 so I think correct answer should be B, Am I correct or in indirect narration it's fine to use past form of verb ?
had better + {past participle} is rare in contemporary English, certainly American English, and speakers will avoid it, if they are even aware of it as an option, as few are:
She said to Mr Weston that it would be better if they moved on. contemporary
By contrast, here's something from a work printed in London in 1845 (emphasis mine):
The admiring pupil is perhaps not select in his gatherings and recollections; he embalms much that had better gone to decay; he accumulates rubbish as well as rubies; be possibly mistakes, or mistates, the words or intentions of the speaker; and he injures the fair fame of the object of his veneration, by recording much that had better been forgotten...
