In their ruling, the independent panel said the PSR rules “are, in relevant parts, far from well drafted”.
Reacting to its decision, the Premier League added: “If the Appeal Board is correct, its decision will have created a situation where any club exceeding the PSR threshold could avoid accountability in these specific circumstances.
“This is clearly not the intention of the rules.”
The panel upheld Leicester’s appeal and said that they were “no longer a club” governed by the PSR rules when the calculation was carried out.
“It is not obvious why such a club should be subject to the disciplinary jurisdiction of the Premier League,” their decision read.
The Foxes were “not in breach, and should not be treated to be in breach, of the rules,” they added.