The mesh proxy would work, but it’s not easy to configure and for somewhat little benefit, especially if they’re all running on the same box. The way that’d work is, NGINX would talk to the mesh proxy which would encrypt it to the other mesh proxy for the target container, and then it would talk to the container unencrypted again. You talk to 3 containers and still end up unencrypted.
Unless you want TLS between nodes and containers, you can skip the intermediate step and have NGINX talk directly to the containers plaintext. That’s why it’s said to do TLS termination: the TLS session ends at that reverse proxy.