Phusion Passenger assumes that Rack application (Rails >= 3) directories have a certain layout. Suppose that you have a Rack application in /webapps/rackapp. Then that folder must contain at least three entries:
* config.ru, a Rackup file for starting the Rack application. This file must contain the complete logic for initializing the application.
* public/, a folder containing public static web assets, like images and stylesheets.
* tmp/, used for restart.txt (our application restart mechanism). This will be explained in a following subsection.
So please check your having, config.ru in your root directory and public, tmp folders.
Refer: http://www.modrails.com/documentation/Users%20guide%20Nginx.html#deploying_a_rack_app