This is a tricky one, for sure!
A and B are incorrect because (amongst other things) of a modifier error; in those sentences it sounds as if the alphabets were derived from the Empire (the "it" refers back to the Empire).
D is incorrect because we have a plural subject for the verb "derive" - *both* the northern and southern Indian alphabets. Therefore, we can't use the singular verb "derives".
Finally, E is incorrect because (amongst other things) this sentence makes it sound as if the Empire itself was the thing that derived the alphabets, by using the parallel construction "bringing with it... and deriving from it...".
Hope this helps!
Jim S. | GMAT Instructor | Veritas Prep