 Solution

Sodium borohydride is chemoselective for the ketone; lithium aluminium hydride reduces both the ketone and the lactam. In an amide, donation of the N lone pair into the carbonyl $\pi$ system reduces the carbonyl carbon's electrophilicity. It is therefore substantially less susceptible to the milder hydride donor.

Lithium aluminium hydride supplies more strongly reducing hydride equivalents, and the strong affinity of aluminium for oxygen assists removal of the amide oxygen through the iminium pathway. This difference explains both the unchanged lactam carbonyl in B and the absence of that oxygen in C. Both reactions are interpreted after the usual protonating workup.