"Using horse-driven carriages only for joyrides solely for human pleasure is an avoidable activity," the order said.
The court agreed with animal rights groups that the practice was cruel.
Reports say that around 700 families depend on Victoria carriages for their livelihood.
Monday's court order came on a petition filed by animals rights groups which said the horses were often malnourished, denied adequate rest and care.
The Bombay high court in the city of Mumbai ordered that all stables where these horses are kept must be closed down and  directed the authorities to come up with a scheme to rehabilitate those involved in the trade.
Styled on open carriages used during Queen Victoria's times, these horse-drawn carriages have been seen on Mumbai's streets since British times and a ride on them has been one of Mumbai's most-popular tourist attractions for decades.
The drivers of these carriages say that "Victorias are a key part of Mumbai's cultural image" and some of them say they are sceptical about the government's rehabilitation plans.
Usmaan, who is 60, has been working with a horse-drawn carriage since he was 12, says it is going to be difficult for him to adapt to a new job and that he feels like his "hands have been cut off".
The court has also ordered that all horses should be rehabilitated at a care centre.
"The government shall also formulate a rehabilitation scheme for the horses. If any reputed animal welfare organisation comes forward to take care of these horses, then the state government is free to consider the same" the Hindustan Times quotes the court as saying.

He beat off competition from David's Bowie's final album Blackstar, Laura Mvula, Michael Kiwanuka, The 1975 and Radiohead.
"I'm just so thankful. I've been trying to do this music stuff and work it out for so long... I was like 'let's do it for ourselves'" he said.
Read more by TAPPING HERE.

Player offences will be measured across four levels and punishments range from giving away five runs to being dismissed temporarily or permanently.
Batsmen will also now not be run out if their bat loses contact with the ground after being grounded behind the crease.
The new laws will come into effect from 1 October, 2017.
MCC (the Marylebone Cricket Club) is the guardian of the laws and spirit of the game, and has a world cricket committee - established in 2006 - of 12 current and former top international players which made its recommendations last December.
This is the first time a new code of laws has been written since 2000.
The mode of dismissal of a bowler running out a batsman at the non-striker's end has also been changed.
Bowlers will now be able to perform the run-out "to the instant when the bowler would normally have been expected to release the ball", rather than before entering his or her delivery stride, as was the previous rule.
Offences and punishments include:
Level 1
Level 2
Level 3
Level 4
"We felt the time had come to introduce sanctions for poor player behaviour and research told us that a growing number of umpires at grassroots level were leaving the game because of it," MCC head of cricket John Stephenson said.
Following much debate in the past few years over bat sizes, and a call for restrictions from the International Cricket Council in June, specific size limitations to the edge and depth of bats will be added to the laws as the committee believes "the balance of the game has tilted too far in the batsman's favour" - with some mis-hit shots clearing the boundary for six.
Bat edges will have a maximum allowance of 40mm and bat depths must not exceed 67mm (60mm plus an allowance of 7mm for a possible curve on the face of the bat) and the width can be up to 108mm.
"The bat size issue has been heavily scrutinised and discussed in recent years. We believe the maximum dimensions we have set will help redress the balance between bat and ball, while still allowing the explosive, big hitting we all enjoy," Stephenson said.
While a bat gauge will be used to enforce the new restriction in the professional game, a moratorium will allow amateur players to continue to use their existing bats which may be in breach of the new law.
A court in India has ruled that Mumbai's famous horse-drawn carriages, popularly known as "Victorias", are "illegal" and must go off the city streets in a year.
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Cricket will introduce sendings-off, award penalty runs for poor behaviour and limit bat sizes after lawmakers the MCC approved the changes.