why does the narrator flee from the place on seeing a ghost ? did iswaran tell the truth

It was not the narrator who fled, but it was Mahendra. When he heard that Iswaran had seen him see the ghost, he immediately left his home and went to his office and resigned, since he was scared and did not want to stay in the haunted place. 

It is questionable whether Iswaran was telling the truth or not. There is a possibility, he was trying to fool Mahendra and was getting back at him for not believing him when he narrated the story of the ghost initially. May be it was Iswaran dressed as the ghost, trying to scare Mahendra.