A group of Scottish businessmen is mounting a legal challenge to the Government's controversial decision to allow HBOS to be taken over by Lloyds TSB without referring the deal to the Competition Commission.

The Merger Action Group (MAG), which includes hundreds of customers and shareholders, has filed an application with the Competition Appeal Tribunal claiming that the Business Secretary's decision was “unlawful”.

The Government gave the green light to the takeover on October 31, overruling competition concerns raised by the Office of Fair Trading, with Lord Mandelson arguing that the deal was in the interest of preserving financial stability.

MAG wants a judicial review of the decision and is confident that it will get a hearing, which it wants to be held in Scotland. It expects to get details of a hearing this week.

HBOS insists that its proposed takeover by Lloyds TSB will go ahead despite the group's efforts and that its general meeting on December 12, where shareholders are expected to back the takeover, would take place as planned. Even if MAG is successful, the deal is likely to go through - the Government could simply restart the process to get around the appeal.

The deal, which has been approved by Lloyds TSB's shareholders, has ignited a backlash in Scotland, with many upset that a part of Scottish business history is moving south of the border. Thousands are also likely to lose their jobs.

Malcolm Fraser, an Edinburgh-based architect responsible for the repair and renewal of HBOS's headquarters in the Scottish capital, is a key member of MAG. He said that the group was “extremely concerned that due legal process has been ignored”. “In Scotland, particularly, there is widespread and growing unease about what has taken place,” Mr Fraser said. “Given that taxpayers are ultimately funding the takeover, we are simply asking that the law is properly applied and that our long-term interests are protected.”

The group also includes: Tim Noble, the retired chairman of Noble Group, the investment group; Peter de Vink, a corporate financier; and Dan Macdonald, chief executive of Macdonald Estates, the property developer. MAG intends to name more supporters, including politicians, next week.

A spokesman for HBOS said that the appeal had “no merit whatsoever” and that it was an “unnecessary distraction”. He highlighted that rival banks and consumer associations had not made an appeal.

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