In March 1998, Aaron Govendir told police he was knocked unconscious by an unknown man who entered their Dover Heights home posing as a police officer before bludgeoning his wife Denise to death and stealing their car.
Police claim the entire story was fabricated to cover up the now 81-year-old's involvement in the killing.
He was arrested over the cold case on Thursday and appeared by audio-visual link at Penrith Local Court on Friday where a magistrate granted him bail.
He walked into a small room at Amber Laurel correctional centre in Emu Plains aided by a walking stick and complaining about the cold, before watching his barrister Brendan Green successfully argue for his release.
Mr Green said his client should not remain behind bars while the case moved through the courts.
He described the circumstantial case against the Blaxland man as "tenuous," saying there had been little in the way of fresh material brought forward after police reopened the investigation in 2021.
New evidence in the prosecution case included additional witness statements, including from the GP who examined Govendir after the alleged attack, the court was told.
Mr Green also pointed to his client's advanced age and health, as well as the lack of any criminal record.
Govendir had co-operated with police and had even handed himself in at Springwood police station before his arrest, the barrister said.
Police allege that a home invasion story was to cover up Aaron Govendir killing his wife Denise. (HANDOUT/NSW POLICE)
The police prosecutor denied the case against the 81-year-old was weak, calling it a strong case with a significant chance of success.
He said there was a concern that Govendir would not appear at court and would interfere with witnesses if he was released.
"A common thread is the manipulation, the anger and the volatile nature of the accused in these matters," he said.
Magistrate Robyn Denes acknowledged the risks raised.
"It's a new ball game," she said.
"Now he's been charged, it's an entirely different scenario."
However, she still granted bail, saying any concerns could be ameliorated with the proper conditions.
Homicide squad commander Danny Doherty said it was "in essence a domestic-violence murder". (Mark Evans/AAP PHOTOS)
Govendir will be required to stay at his Blaxland address, to surrender his passport and stay away from airports, and to refrain from contact with all prosecution witnesses, including his children.
Mr Green refused to comment further when approached by journalists outside court.
On Tuesday, homicide squad commander Danny Doherty said the alleged home invasion claimed by Govendir was fake.
"We will allege it was a staged robbery, just to cover the tracks of what allegedly has been committed, which was in essence a domestic-violence murder," he told reporters.
"We allege this man was responsible for violently assaulting Denise and then staging a robbery ... when in fact, nothing was actually stolen."
An inquest between 2005 and 2008 declared Ms Govendir died from blunt-force head injuries that were intentionally inflicted.
The NSW government in November announced a $1 million reward for fresh information that could lead to her killer's arrest and conviction.
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