Thats not the issue. Sry i didnt post the whole declaration but yes im 
calling process.

This is the declaration
form = SQLFORM.factory( fields...).process(formname = "form1")

The problem was the IS_BINARY validator which was consuming the file before 
it got saved. If i remove it the file is stored properly.

Its a bit embarrasing but thanks for the answers.

Still, is there a way to set a default upload folder for factory fields?

Thanks

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