You can remove it if you want.
I've set this limit simply to give a "visual" hint that there's overflowed content when content is barely longer than the container (e.g. when there's 2-3 pixels overflow you can't really see the scrollbar moving due to animation inertia/easing).
Anyway, you can safely remove it (esp. since you always show it).

There's also another way you could do it (I haven't tested it but it should work), without editing the script. You could remove the dragger css max-height value on onOverflowYNone callback, for example:

$(selector).mCustomScrollbar({
    callbacks:{
        onOverflowYNone:function(){
            $(this).find(".mCSB_dragger").css("max-height","none");
        }
    }
});

That will not work since height is calculated bigger then .mCB_draggerContainer. I created pull request that fixes bigger height problem and also my initial problem.

I have same problem with width. How can I fix it?