Midfielder Garvan, who joined the club in August 2010, featured in the first three matches of the new season but was then left out of the final Palace squad submitted to the Premier League after the transfer window closed.
That was met with a furious response from the player, who reportedly took to Twitter to post: "I'll be here longer then he will...trust me".
Holloway, though, has moved to defend the decision, claiming that Garvan had demanded a regular starting spot.
"The rules of the competition are that if you have more than 25 players you have to de-select some. That is just it," Holloway explained.
"He was really close to being selected. In fact, if it wasn't for a conversation we had the week before, because he wasn't going to be in the starting XI, he would have been in my 25.
"He made it totally clear to me that he didn't want to be in the 25 if he wasn't starting almost every week. I couldn't guarantee him that."
Frenchman Florian Marange was another player not included in Holloway's squad, with the 27-year-old claiming he was "disgusted" at his treatment.
The former Bordeaux man insisted that he was unaware there was a rule governing squad size, but Holloway said neither he nor Palace were in the wrong over the situation.
"I didn't want his family coming over here if he wasn't exactly the player we thought he was going to be," Holloway continued.
"It's as simple as that. I needed some pace in that back-line and he hasn't got it.
"We brought him in during pre-season, I have had a look at his record and thought he would be fine but in two games he didn't look quick enough. If he doesn't like it, I can't help that.
"His agent knew three or four days before the window shut. So he could have got him a French club, so why didn't he?"
