UPDATE (November 19th, 2013): Modified script for nginx 1.4.3 (Does not need spdy patch)
https://gist.github.com/deepak-kumar/7541199#file-compile_nginx_1-4-3_with-spdy-sh
I wrote Shell Script for the setup
https://gist.github.com/deepak-kumar/5069550#file-compile_nginx_with_spdy-sh
I have found the solution to the problem.
I already had nginx package installed on my ubuntu 12.04 even before compiling this 1.3.13 which was causing the problem.$ sudo apt-get install nginx
To solve this issue I made sure that /etc/init.d/nginx should use the correct binary.
I did following on terminal:
$ which nginx
$ /usr/local/sbin/nginx
Checked my existing /etc/init.d/nginx
script it was using wrong DAEMON
path so I changed it to look like this (works)
PATH=/usr/local/sbin:/usr/local/bin:/sbin:/bin:/usr/sbin:/usr/bin
DAEMON=/usr/local/sbin/nginx # $which nginx
Earlier above values were (does not work)
#PATH=/usr/local/sbin:/usr/local/bin:/sbin:/bin:/usr/sbin:/usr/bin
#DAEMON=/usr/sbin/nginx
Rest of the file remains same. So essentially I used the correct version binary.
Update: This blog is also a very good reference point in case you guys are interested. http://blog.bubbleideas.com/2012/08/How-to-set-up-SPDY-on-nginx-for-your-rails-app-and-test-it.html