'In view of the fact that participatory notes are market instruments and when they are created and traded abroad it is not possible to ban the issue of the said instrument,' it said adding they are being regulated effectively and efficiently by SEBI.

The government said it was mandatory for all FIIs to report at the end of every month all the informations relating to participatory notes issued by them including the names of the subscriber to the said participatory notes.

The government, however, agreed to the possibility of the misuse of double taxation treaty between India and Mauritius.

'The centre is alive and conscious of the potentiality of the misuse of the double taxation treaty between India and Mauritius. In fact, further amendments to the treaty are being negotiated,' the affidavit said.

The Department of Revenue brushed aside the allegation of inaction relating to stashing of black money in foreign banks by Pune-based businessman Hasan Ali Khan against whom the Enforcement Directorate has lodged a complaint for violating the Foreign Exchange Management Act (FEMA).

It termed as baseless the allegation that the government was interested in protecting powerful individuals who may have been using Khan and his wife as their nominees.