A deal was agreed between the two clubs for the 32-year-old to move to the City Ground on loan on the final day of the summer transfer window.
However, a dispute over if the relevant paperwork had been submitted on time left the player in limbo as Forest attempted to push through the deal.
The Championship club attended an arbitration hearing this week in order to plead their case and confirm Grosicki as their player, but on Thursday the EFL ruled against them.
A statement said: “An Independent Appeal Panel has dismissed a challenge by Nottingham Forest in respect of the decision made by the EFL to reject an application for the on-loan transfer of Kamil Grosicki from West Bromwich Albion.
“The EFL advised Nottingham Forest that the club had not submitted the relevant documents in relation to Grosicki’s on-loan transfer prior to the transfer window closing at 5pm on Friday 16 October 2020.
“Nottingham Forest requested that the decision of the Executive be reviewed by the EFL Board. Having considered submissions from the club, the board agreed to confirm the original decision.
“In accordance with EFL Regulations, the club opted to refer the matter to an Independent Arbitration Panel who upheld the board’s decision.”
It means that Grosicki has now returned to West Brom and will be included in their Premier League squad up until at least January. The Poland international has yet to make a Premier League appearance for the Baggies.