Option 1: Nager Haveli is not the correct answer because it was a Portuguese territorial possession before its merger with India, not a French possession.

Option 2: Daman is not the correct answer because it was also a Portuguese territorial possession before its merger with India, not a French possession.

Option 3: Chandernagore is the correct answer. It was a French possession before its merger with India. Chandernagore is located in the state of West Bengal and was a former trading post of the French East India Company. It remained under French control until 1950 when it was officially merged into the Indian Union.

Option 4: Dadra is not the correct answer because it was a Portuguese territorial possession before its merger with India, not a French possession.

In conclusion, the correct answer is option 3, Chandernagore, as it was a French possession before its merger with India.