Theory:

     By the time he had got up in the morning, had a bath and come out to have his breakfast, the horror of the previous night had faded from his memory. Iswaran greeted him at the door with his lunch packet and his bag. Just as Mahendra was stepping out Iswaran grinned and said, “Sir, remember the other day when I was telling you about the female ghost with a foetus in its arms, you were so angry with me for imagining things? Well, you saw her yourself last night. I came running hearing the sound of moaning that was coming from your room...”

     A chill went down Mahendra’s spine. He did not wait for Iswaran to complete his sentence. He hurried away to his office and handed in his papers, resolving to leave the haunted place the very next day!
Explanation:
 
The next morning Mahendra woke up from his bed, took his morning bath and came out to have his breakfast. The horror experience from the previous night had faded from Mahendra's memory by then.
 
Later, Iswaran met Mahendra at the door to give him his lunch packet and bag. As Mahendra was about to leave the house, Iswaran smiled and said he had heard the moaning sound of Mahendra from the room the previous night. Iswaran reminded Mahendra that he had scolded him for discussing the ugly ghost, but Mahendra himself saw the same spirit last night. Iswaran tried to prove him that these horrible things would happen around their living place during full-moon nights.

When Iswaran reminded him of the previous night, Mahendra got scared again. Mahendra did not wait for Iswaran to complete his sentence about the ghost. Mahendra hurried off to his office, and he decided to resign from the job and leave the haunted place the next day itself. He could not live in the scary place any longer.
 
Meanings of the difficult words:
 
S.No
Words
Meanings
1
Faded Gradually grow faint and disappear
2
MemoryThe ability to remember information, experiences, and people
3
Greet Give a polite word of recognition or sign of welcome when meeting someone
4
Grin Express with a broad smile
5
Haunted Of a place occupied by a ghost
6
Hurried Done something in a hurry or rushed manner
Reference:
National Council of Educational Research and Training (2006). Moments. Iswaran the Storyteller– R.K. Laxman (pp. 12-18). Published at the Publication Division by the Secretary, National Council of Educational Research and Training, Sri Aurobindo Marg, New Delhi.