Pilots at the airline had opposed the appointment of Kathpalia when his name was cleared for the post by the Appointments Committee of the Cabinet in March.
In February, Kathpalia had been suspended for three months by aviation regulator for skipping mandatory pre-flight medical test on several occasions.
The civil aviation ministry has appointed Kathpalia, who is executive director, as director of operations of Air India.
"... The appointment is for five years with effect from the date of his assumption of charge of the post or till his superannuation or until further orders, whichever is the earliest," an order dated June 27 said.