Step 1: Analyze the context and the stated problem.
The overarching context is that Vardarajan, a top performer from the previous year, is now disengaged. The immediate premise of this question is that he "did not find his work challenging enough." However, a sudden drop in motivation after a period of intense, high achievement often points to burnout. The feeling of being "unchallenged" can be a symptom of this burnout, where the employee lacks the mental energy to engage with their work, making it feel mundane.
Step 2: Evaluate the proposed solutions in light of the potential root cause.
(A) Give a more challenging assignment: If the root cause is burnout, giving him an even more challenging assignment could worsen his condition, leading to further exhaustion and potential failure. It addresses the symptom, not the cause.
(B) Transfer to another department: This is a significant change that doesn't address his potential exhaustion. It might add the stress of a new environment without resolving the underlying issue.
(C) Ask him to take a vacation: This directly addresses the most likely root cause of a top performer's sudden decline: burnout. A vacation would allow him to rest, recharge, and recover his mental energy, enabling him to return to work with renewed focus and perspective.
(D) Send for further training: Training requires focus and energy. If he is burnt out, he will not be able to benefit from the training, making it an ineffective solution at this time.
Step 3: Conclude the most appropriate step.
While giving a more challenging assignment seems like a direct answer to the stated problem, a prudent manager would first consider the possibility of burnout, which is a common aftermath of a superlative performance cycle. Addressing this underlying issue with a period of rest is the most restorative and effective long-term solution.
Therefore: Asking him to take a vacation is the most appropriate step to address the likely root cause of his demotivation. \[
\boxed{\text{(C)}}
\]