I'm using the usual translation....and as usual, I'm not authorized to say a word by a teacher; my words and comments are purely mine.
Mahamati points out that true knowledge is independent of any objects supporting it; and any statements we would make about such knowledge would be the product of thought-construction, and hence having no intrinsic essence, and hence not to be taken ("seized" or apprehended) as real. Without this apprehension, discrimination ceases to evolve. Mahamati then asks why true knowledge might be unobtainable; is it because of its aspects of unity or separateness, or because of obstructions, the distortion of the senses, etc.?
If, Blessed One, knowledge was not obtainable because of our not recognising individuality, generality, unity and plurality, then, Blessed One, such cannot be [transcendental] knowledge; it is to be called ignorance (ajnana), for in spite of the fact that objects to be known are before us we do not know them. Again, if knowledge is unobtainable because [such ideas as] individuality, generality, multiplicity, and self-nature overpower one another, such is ignorance (ajnana). Blessed One, it is not [transcendental] knowledge. Where there is something to be known, Blessed One, knowledge evolves; where there is nothing, none evolves; knowledge is possible [only] where there is a correspondence with that which is known.
The Buddha replies that such transcendental knowledge, that which is not obtained via the myriad methods of discrimination, or true knowledge, is not ignorance.
It is not because of the deeper sense that I say this, but when [we know that] there is knowledge gained independent of any supporting object, whatever statements we make about it are no more than thought-constructions. That [transcendental] knowledge is unobtainable is due to the recognition that there is nothing in the world but what is seen of the Mind, and that these external objects to which being and non-being are predicated are non-existent. As this [knowledge] is unobtainable, there is no evolving of knowing and known, and as thus the triple emancipation is realised, there is unattainable knowledge [which is transcendental].
I get the feeling from reading this that if such exchanges did take place, then the Buddha must have been really patient; because it seems (by now!) that Mahamati was expending a lot of thought construction getting the Buddha to speak on this like this at this point.
The Buddha summarizes:
Unity does not mean the annihilation of separateness, and vice-versa.If [transcendental] knowledge fails to see an objective world which lies before it, such is ignorance and not knowledge; this teaching belongs to the logicians.If [transcendental] knowledge fails to see, though various obstructions far and near, its own unique object that does not present itself [as an object], such is to be called wrong knowledge.If [transcendental] knowledge fails to know, on account of defective senses such as infancy, old age, and blindness, its own object which is present, such is to be called wrong knowledge.