Hi,

According to MCI counselling guidelines

"If a candidate does not report at the allotted institute in Round-1, this will be considered as ‘Free Exit’.(option available only in Round-1). However, candidates who have not joined (the Round-1 allotted seat) by availing the free exit option, may participate again in Round-2 after logging in with their earlier Registration details."

It is not mandatory to participate in round 2 for a candidate however if you wants to get the seat through counselling you need to participate in the counselling.

Hope you find it helpful.