This story appears in Section 23 of the Shanti Parva (Mahabharatha).
After the completion of the war, Yudhishthira was in great sorrow. He was completely shaken by the loss of life and expresses his desire to renounce his kingdom and leave to the forest. Arjuna tries to console Yudhishthira and reminds him of the duties of a king. He elaborates the true role of a Raja and his commitment towards his citizens. He encourages Yudhishthira to perform his duties without any grief or doubts as what he did was only to restore dharma on earth. Vyasa added to what Arjuna said. He tells Yudhishthira, “Oh Yudhishthira, what Arjuna says is true. A life of renunciation and retirements is not for you. Yagnas, learning, parakrama ambition, punishing the offenders, fierceness, protection of subjects., knowledge of the Vedas, practise of all kinds of penances, goodness of conduct, acquisition of wealth, and gifts to deserving persons are the duties of a king. Of these, the prime duty is to punish the offenders”.
At this juncture, to highlight the importance of performing ones duty, Vyasa narrates a story.
Story of Sankha, Likita and King Sudyumna
There were two brothers, Sankha and Likita who lived on the banks of the Vahuda river. Once Likita went to the house of Sankha. However, he noticed that Sankha had gone out. Casually, Likita plucked some fruits and started eating them. When Sankha returned, he was enraged. He said that Likita had committed a great crime by taking what did not belong to him and hence he must go to the king immediately and be punished. Likita went to the palace of the king, discussed the matter and sought punishment. The king, surprised at the whole thing, said that just as he had the power to punish he also had the power to forgive and hence he would be happy to forgive Likita. Likita was adamant that he should be punished as he had deviated from the path of dharma. The king cut off the hands of Likita.
Likita, with cut hands, walked to Sankha and begged for forgiveness. Sankha assured Likita that he had no ill feelings for Likita but said that the king had been purified and elevated as he had punished the person who had committed an offence. He asked Likita to go and take bath in the Vahuda river. Likitas hands were restored when he bathed in the river.
Vyasa concluded by saying that “That king, O eldest son of Pandu, became eminent by this act and obtained the highest success like the lord Daksha himself! Even this is the duty of Kshatriyas, viz., the ruling of subjects. Any other, O monarch, would be regarded as a wrong path for them. Do not give way to grief. O best of all persons conversant with duty, listen to the beneficial words of this thy brother. Wielding the rod of chastisement, O king, is the duty of kings and not the shaving of the head.’ ”