Victoria Police took Novillo away from his apartment in handcuffs in the early hours of Tuesday morning, after responding to a call from his partner.
It is believed police have attended the apartment block more than once before in relation to incidents surrounding Novillo.
Melbourne City stood down the winger from training pending this investigation, after which they decided to suspend him for two matches, and fine him 50 per cent of one week's wages.
Melbourne City said there had been a serious breach of the requirements set out in the FFA National Code of Conduct and that Novillo had "failed to uphold professional standards off the field, failed to behave in a manner that promotes the highest standards of integrity and the player failed to properly explain his absence from a club training session".
The suspension and fine are the maximum allowable under the Code of Conduct.
No charges were laid by police after the incident.