In my opinion, your first possibility is right. But as the Cav-Nayaka's initiative is higher (or as high - I don't have the playbook with me) as the number of cav units under his command, he does not need to give line-commands.
He has more than enough initiative (init 3 and only 2 units) so line commands aren't really an issue.
The only real effect I can think of would be the ability to coordinate with the other Nayaka in a single Wing Command activation depending on Chandramas' position.
Note: This is not possible turn one, and is not terribly likely likely in any case. EDIT: At least an all three Nayaka WC isn't terribly likley. It's not too hard to envision a LF Cav + Left CH/INF combined WC.