I tried everything, from changing configurations in existing projects where the minitest runs, to re-installing the ST3 package to reinstalling ruby itself as a last resort. The problem, it turns out was way smaller.
When I execute this command bundle foo -t minitest
the following files are created:
bundle gem foo -t minitest
create foo/Gemfile
create foo/Rakefile
create foo/LICENSE.txt
create foo/README.md
create foo/.gitignore
create foo/foo.gemspec
create foo/lib/foo.rb
create foo/lib/foo/version.rb
create foo/test/minitest_helper.rb
create **foo/test/test_foo.rb**
create foo/.travis.yml
Notice the name of the file containing test cases. I renamed it to foo_test
and it just worked.
I now need to figure out, why minitest needs the filename in that particular format and if possible, change/edit it.