In this case customer was getting the following error when he was trying to checkout a document
"This document could not be checked out to your local drafts folder. The document may have already been checked out, or the local drafts folder could not be written to."
Interestingly this issue did not occur on a new web application, and we did not see anything strange in ULS logs either.
This was also an issue caused by the WebDAV module, interestingly customer had this WebDAV module installed for only one web application which kind of explain why the issue was occurring on only one web application
Question - How do I remove WebDAV module from IIS Server?
Answer - This is how you can remove WebDAV module from IIS
1) Open Server Manager
2) Expand Roles, click on Web Server(IIS)
3) Click on Remove Role Services
4) UnCheck WebDAV Publishing
5) Click Next
6) Click Remove
Question - I cannot remove WebDAV module as my non-SharePoint sites use this module
Answer – In that case we can remove WebDAV modules from just SharePoint site instead of removing it from the IIS
1) Open IIS
2) Expand Sites
3) Select the SharePoint Web Application
4) Select Modules from the Features View
5) Select WebDAVModule from the list of Native Modules and click on Remove