Officials managing state transport undertakings are disqualified from appointment as Chairmen of Transport Authorities.

The Petitioner challenged the appointment of Respondent No. 2 (Principal Secretary/Additional Chief Secretary, Transport) as Chairman of the State Transport Authority (STA-HP) and Respondent No. 3 (Director, Transport) as Chairman of all Regional Transport Authorities (RTAs-HP) via Notification dated 29.05.2023.

The Petitioner contended that both officers are disqualified under Section 68(2) of the Motor Vehicles (M.V.) Act, 1988, because they serve as ex officio Directors on the Board of the Himachal Roadways Transport Corporation (HRTC), a State Transport Undertaking.

The Respondents argued that their roles in HRTC are purely advisory/policy-oriented and do not constitute a "financial interest" or direct connection to management as contemplated by the disqualification clause.

Whether the ex officio Directorship of Respondents No. 2 and 3 in HRTC constitutes a "financial interest" or a direct connection with the management of a transport undertaking so as to disqualify them from being members/Chairmen of the STA and RTAs under Section 68(2) of the M.V. Act.

Whether the disqualification clause in Section 68(2) of the M.V. Act applies to the "Chairman" of the authority or is restricted only to other "members."

The court primarily applied Section 68(2) of the Motor Vehicles Act, 1988, which prohibits the appointment of any person having any financial interest—as proprietor, employee, or otherwise—in a transport undertaking to the STA or RTA.

It relied on the "wider meaning" of "financial interest" established in Mor Modern Transport Co. v. State of Haryana (2002) 6 SCC 511, which includes official accountability for finances or management of an undertaking.

The court also applied Sections 5, 11, 15, and 19 of the Road Transport Corporations Act, 1950, which vest the "general superintendence, direction, and management" of a Corporation in its Board of Directors.

Finally, the "De Facto Doctrine" was applied to protect the validity of past official acts performed under a defective appointment to prevent public mischief, per Gokaraju Rangaraju v. State of Andhra Pradesh (1981) 3 SCC 132.

The court rejected the State's argument that the disqualification in Section 68(2) applies only to "members" and not the "Chairman," holding that the Chairman is fundamentally a member of the authority and must meet the same disinterested status.

Analyzing the Road Transport Corporations Act, 1950, the court found that HRTC's Board of Directors—including Respondents No. 2 and 3—exercises powers over fleet management, routes, and financial expenditure, meaning they are "directly connected" with the management of the undertaking.

Following Mor Modern, the court held that even ex officio roles satisfy the "financial interest" criteria in a wider sense because these officers shoulder financial accountability for the State’s competitor (HRTC), creating a conflict of interest that attracts the bar under the third proviso of Section 68(2).

The Court quashed the Notification dated 29.05.2023 and directed the State to reconstitute the STA and RTAs with eligible, disinterested persons by 31.03.2026.

Respondents No. 2 and 3 were ordered to cease acting as Chairmen immediately.

However, invoking the de facto doctrine, the court held that all past orders and acts performed by the Respondents in their capacity as Chairmen shall remain valid and shall not be voided solely due to the invalidity of their appointments.