Contingent liability

An obligation that will crystallise only if some future event happens, most often a tax dispute, a legal claim, or a guarantee given on behalf of another company. It is disclosed in the notes rather than recognised on the balance sheet, because it is not yet probable enough to be a liability.

An Indian mid-cap with ₹3,300 crore of equity discloses ₹1,240 crore of contingent liabilities, most of it disputed indirect tax. That is over a third of the net worth sitting in a footnote.

Guarantees given for group companies deserve separate attention, because they convert somebody else's leverage into your shareholder's risk. That is the mechanism by which several Indian promoter groups transmitted a failure at one entity into a listed company.

The line is not a forecast, and most disputed tax demands are eventually settled far below the claimed figure. Read it as an exposure map.