There is one important thing that I want to point out,
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First we have to accept that there were 2 seats in HO quota that were released to you before/during charting, now due to some last minute request for HO pax, the allocated berths might have been taken back and chart prepared/re-prepared keeping you back in WL.
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Please...
more... note that rules for 1st AC and all other classes are different. In case of 1st AC, Railway can allocate more than the earmarked quota for VIP travel, i.e. even the CNF ticket holder from GEN quota can be declined berth at charting(fully legal and mentioned clearly in railway commercial rules), where as in case of other classes like 2A etc, only the earmarked quota is provided to VIP travel. In your case first earmarked quota was released and then taken back from you at last moment. But point to note is that there was any way at least 2 seats of HO quota marked in that from policy angle which only get flushed to system for allocation if there is no request for HO quota.