What is a contingent liability?
It is a possible bill that depends on something not yet decided. A tax demand under appeal or a lawsuit against the company are common examples.
The accounting standard Ind AS 37 defines it as a possible obligation from past events. Whether it exists is confirmed only by uncertain future events the company does not fully control.[S1]
Why can it catch investors out?
A contingent liability is not recorded in the balance sheet. It does not show up in debt, net worth or profit.[S1]
It sits in the notes to the accounts instead, as a description and usually an amount. Readers who stop at the main statements never see it.
How is it different from a provision?
A provision is a liability the company does book, even though the timing or amount is uncertain. Ind AS 37 sets three tests for it.[S1]
- The company has a present obligation from a past event.
- Paying is "probable", which means more likely than not.
- The amount can be estimated reliably.
If an item fails these tests, it is a contingent liability and is only disclosed. If the chance of paying is remote, nothing is disclosed at all.[S1]
| How likely is payment? | What the accounts show |
|---|---|
| More likely than not, and measurable | A provision, booked as a cost and a liability |
| Possible, but not more likely than not | A contingent liability, described in the notes |
| Remote | Nothing |
What kinds appear in Indian accounts?
Schedule III of the Companies Act sets the format of Indian financial statements. Its notes split contingent liabilities into three kinds.[S2]
- Claims against the company not acknowledged as debts: disputed tax demands, lawsuits and other claims the company contests.
- Guarantees: promises to pay if someone else, often a subsidiary, does not.
- Other money for which the company is contingently liable.
The same note lists "commitments", such as contracts already signed for new plants or machines.[S2]
What does a provision for a lawsuit look like in a real filing?
TCS's update of 16 Jun 2026 is one example. It concerned a US lawsuit filed by Computer Sciences Corporation.[S5]
TCS said it had already provided US$150 million in its books for the matter. After the US Supreme Court denied its petition, it said it would provide a further US$70 million in Q1 FY27.[S5]
The full history is on the TCS governance section.
Do companies have to announce new disputes?
Yes, when they matter enough. SEBI's listing rules list pending litigation that may have an impact on the company as a disclosable event.[S3]
SEBI's materiality test uses the lowest of three figures. These are 2% of turnover, 2% of net worth, and 5% of the three-year average absolute profit or loss.[S3]
Hindustan Unilever's filing of 31 Oct 2025 is an example. It reported an income-tax assessment order with a demand for the year 2020-21.[S4]
The filing gave the authority, the date, the reasons and the period. HUL stated that the order had no material impact on its finances, and said it would appeal.[S4] See the Hindustan Unilever governance section.
Where do you find contingent liabilities?
In the annual report, look for the note titled "Contingent liabilities and commitments". It is near the end of the notes to both the standalone and consolidated accounts.
Compare it with earlier years' notes to see which claims are new and which were settled. The guide to reading an annual report shows how the notes are laid out.
New disputes also appear as stock-exchange announcements between annual reports. Our guide on finding NSE and BSE announcements shows where they are filed.
The auditor may also mention a large uncertain case in an "emphasis of matter" paragraph. How to read an audit report explains what that means.