TCP TELNET RST/ACK RESPONSE TO SYN

I am using DC9.62 (with patch) to compile code into RCM3315. It is setup to acquire Dynamic IP and if not available fall back on a static. Dynamic works fine but Static connection just wouldn’t connect.
I get a RST/ACK response to SYN when client (PC) tries to connect to server (Rabbit).
Previously I had this issue resolved commenting out a line in ARP.lib file (Vantive 23956: now use ARP lookup instead of sending back to source’s MAC address). This time it won’t work.

In wireshark I get this sequence:

Client: Who has 192.168.1.12?
Server: 192.168.1.12 is at …
Client: SYN
Server: RST/ACK
Client: SYN (retransmit)
Server: RST/ACK
Client: SYN (retransmit)
Server: RST/ACK

In DC9.62 Stdio I get:

ARP: C0A80101 is asking for my address on i/f 0
ARP: reloading because his IP address in cache
ARP: loaded entry:
0 1 0 192.168.1.1 9C:8E:99:3D:4E:85 0 OK
ARP: telling C0A80101 that I have C0A8010C on i/f 0
TCP: 229ms since last call to tcp_tick!

Any thoughts on what I am missing?
Please don’t tell me to use sample code because the code I’m using works sometimes. Weird thing it works better when I define Verbose mode for ARP.

Thanks,
Dmitry