I think, you should neither cancel, nor tell the TTE that P2 is not travelling. You enjoy the full confirm birth B1/17, and offer the 2nd RAC passenger to enjoy the full berth B1/31.
Passenger 1: CAN (Booking Status: Confirmed: CNF:B1:36:LB:GN) Passenger 2: CAN (Booking Status: Waiting: PQWL:4:PQ) Total Fare: 1920 Chart NOT Prepared
Passenger 1: CAN (Booking Status: Confirmed: CNF:B1:36:LB:GN) Passenger 2: CAN (Booking Status: Waiting: PQWL:4:PQ) Total Fare: 1920 Chart NOT Prepared
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