Denis, Looks from the pictures that whoever messed with it first time round wasn't too good. The groove looks to be the result of neglect, a worn, loose flappy oversize chain, plus probably a loose sprocket, and from the helicoil in the gearbox mount, not too cute on Whitworth threads or assembly detail. Before you commit to more time and effort, check the rest of the motor for impending doom. This costs nothing, and better to have a nasty surprise now, rather than fixing this problem and finding a crack or worse in the other crankcase half. Any pulled threads can be all fixed at the same time rather than piecemeal.
As a start, check the crankcase halves are a matched pair. There should be matching numbers stamped on the front of each, just below the dynamo mounting position.
For the seal, I would get a new one, BSA Service sheets give the original dimensions, so any modern seal to that size will do. Or measure the hole, the shaft diameter and decide the width of seal you need, and select from a modern oilseal chart. Fits with the open lips towards the clutch, to keep the oil in. Then you need to source or make/commission a retaining cup for the seal, as suggested by Morris. Because the case has been thinned, the cup can be made thick enough to hold the seal and have three good deep threads for three small bolts which will hold the dished oil slinger pressing, behind the clutch. A bit like Morris' original washer, but deeper and internally relieved to hold the seal
The crankcase here is under no great strain, and with the primary cover on will cope OK, despite the deep groove. Alloy welding is an alternative to build up the thickness to hold the seal but will add to the cost.
Swarfy.
Additional. The gearbox drive sleeve, the one that carries the gearbox sprocket, should have no in/out movement, as the main ball bearing outer race is located by a circlip, which also retains the sprocket oilseal. A missing circlip and a worn bearing location will allow the sprocket to move out from the gearbox, on the drive sleeve so take off the sprocket to check the seal and circlip are in place. There should be no play in the ball race, but the mainshaft bushes in the drive sleeve will always have a bit of radial play on a well used machine. The other end of the mainshaft is supported by another ball race and there should be no in/out play.