Nginx/passenger encoded slash

Question

I'm running a rails application which sits atop passenger and nginx. We have an issue with slashes reaching routes.rb decoded. What I mean is, if I run a local rails server, no nginx and make a request to:

/v1/fruit/jayamthi%2Fceria@gmail.com

Then the following routes.rb snippet will not see the %2F as a slash:

scope 'v1/:service', :fruit    => valid_fruit,
                     :via        => :get,
                     :controller => :fruit do
  constraints(:q => /[^\/]+/i) do
    ...

If I run the same request through nginx and passenger then the above snippet will treat the %2F as a slash and the consequent matches are looking at the wrong thing. So, what's the deal with nginx and slashes?

P.S here's my nginx configuration:

upstream app_cluster_1 {
  server 127.0.0.1:4000;
  server 127.0.0.1:4001;
}

server {
  listen 80;
  server_name staging.fruity.com fruity;

    location ~* ^\/resque {
      root /var/www/fruity/current/public;
      passenger_enabled on;
    }

    location /v1 {
    passenger_enabled on;

    root /var/www/fruity/current/public;
    rack_env production;
  }

  location / {
    proxy_set_header X-Real-IP $remote_addr;
    proxy_set_header X-Forwarded-For $proxy_add_x_forwarded_for;
    proxy_set_header Host $http_host;
    proxy_set_header X-NginX-Proxy true;

    proxy_pass http://app_cluster_1;
    proxy_redirect off;
  }
}