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As far as I have discovered, the bash process is killed by after the timeout. Presumably the pipe is still open due to the sleep process, so in order to retrieve any output from stdout/stderr, the read waits on the pipe, hence leading to timeout not respected.
We can fix this issue in 2 ways 
(1) kill process tree when timeout happens
(2) force closing the pipes after timeout, but this will leave the sub-processes detached and it will be kept running
I don't know which way is better, hopefully someone with more knowledge can engage in the discussion.