Websocket Rails | 504 response | Connection ends abruptly - ruby-on-rails

Question

I am using websocket-rails gem for handling messaging service for my application.
Tech Stack: Rails 4.2.5, Ruby 2.3.0p0, Passenger as app-server(Also tried with Puma), Thin as websocket server on port 3001, ngnix as web server and
Websocket patch of gem 'websocket-rails', github: 'moaa/websocket-rails', branch: 'sync_fixes'
When an client hits the websocket server, it actively triggers the server event of client_connected and I can see on websocket_rails_server.log the message that I print, i.e.
"++++++++++++++++++++++++++++++++++++++++++++++++++++++++++"
"+++++++++++ WebsocketRails Client CONNECTED ++++++++++++++"
"++++++++++++++++++++++++++++++++++++++++++++++++++++++++++"
But, on client end it abruptly ends with response:
WebSocket connection to 'ws://beta.server.com/websocket' failed: Error during WebSocket handshake: Unexpected response code: 504
I have tried with every solution on Github issues as well as Stackoverflow related question, but no help yet.
My nginx config is as follows(if that's needed anyway):
server {
listen 80;
server_name beta.server.com;
root /var/www/server-rails/current/public;
proxy_cache_bypass 1;
proxy_no_cache 1;
location /websocket {
proxy_pass http://localhost:3001/websocket;
proxy_http_version 1.1;
proxy_set_header X-Real-IP $remote_addr;
add_header Access-Control-Allow-Origin *;
proxy_set_header Upgrade websocket;
proxy_set_header Connection upgrade;
proxy_set_header Host $host;
proxy_set_header X-Real-IP $remote_addr;
proxy_set_header X-Forwarded-For $proxy_add_x_forwarded_for;
}
passenger_enabled on;
passenger_sticky_sessions on;
passenger_app_env staging;
}