Hi,
granted RAM 128 MB
Unfortunately that is not enough for a typical ASP.NET application, due to the way memory is managed by the runtime and garbage collection, that is not enough to give it the head room it needs. In a low memory environment like that the application pool will recycle too frequently because it will recycle whenever it reaches that memory limit even for a brief moment. So in this case it is probably recycling during the file upload and this causes the problem. Most good ASP.NET shared hosting providers such as Arvixe set the available RAM to 200MB and that generally seems sufficient to avoid too much application pool recycling in most ASP.NET applications.
Hope that helps,
Joe